Mauritius became independent of the United Kingdom in 1968 and became a Republic in 1992. The Republic of Mauritius includes the islands of Mauritius, Cargados Carajos, Rodrigues and Agalega. Mauritius covers a surface area of 2,040 square kilometers and is home to an estimated population of 1.3 million. It has a population density of 628 people per square kilometers. With a population growth rate estimated at 0.5 percent, official projections show that Mauritius will soon face the ageing population syndrome (population above age 60 increase from 9 percent in 2000 to 23 percent in 2040). Ethnically, the country is made up of a majority of Indian people and people of African, European and Chinese descent. Practiced languages are English, French and Mauritian Creole.
This parliamentary Republic is a member of several regional organizations, including the African Union, the Common Market for Eastern and Southern Africa (COMESA), the Commonwealth of Nations, the Indian Ocean Commission (IOC), the Organisation Internationale de la Francophonie, and the Southern African Development Community (SADC). It has an estimated GDP of US$8,590 million in 2009 and is considered to be an upper middle income country with its GNI per capita at US$7,250. The poverty rate, whether measured as relative poverty, absolute poverty, or with respect to food poverty, is low. Using the relative poverty measure, the poverty headcount is estimated to be 8.7 percent, which is low compared to the average in Sub-Saharan Africa, in which poverty headcount ratio at US$2 a day represents 72.9 percent of population. Despite its small size, regional variations in poverty exist in Mauritius. The incidence of relative poverty is higher in urban areas (12.4 percent) than in rural areas (8.0 percent).
In Mauritius, the Prime Minister is the head of the Government. The Honourable Navinchandra Ramgoolam has held office since May 2010. A Government reshuffle took place in July 2011, and several Ministers changed, including the Finance Minister. However the agenda remains the same, with the following key elements: economic efficiency and social justice, strengthening national unity, entrenching democracy, promoting still higher norms of governance including transparency and accountability in public affairs and ensuring that the population at large becomes stakeholders in national development. The Honourable Charles Gaëtan Xavier-Luc DUVAL,Vice-Prime Minister, Minister of Finance and Economic Development , wishes to focus his tenure on implementation and delivery of results.
The Bank is committed to supporting the Government in implementing this agenda.
Economy
Mauritius has solid economic fundamentals: open to FDI (465 US million in 2010, 5.3 percent of GDP), export oriented (5,000 US million in 2010, 57 percent of GDP), high standards of governance (39th in the Transparency International Corruption Perceptions Index) and business friendly (the top-ranked African country in business climate, ranked 20th globally in the 2010 World Bank Doing Business report).
The country is ranked high in terms of competitiveness, investment climate and governance. The World Economic Forum’s global competitiveness index ranked Mauritius at 55 out of 133 countries in 2010 - 2011, behind only South Africa in the Africa Region. It topped the 2008 Mo Ibrahim Index of African Governance, and is ranked 36 in the AT Kearney Global Services Location Index 2011. The remarkable performance of the economy is attributed to sound economic governance, accelerated reforms to sustain long-term growth and effective state-business relations. These factors together with timely and targeted responses helped Mauritius to weather the negative effects of the global crisis.
Mauritius embarked on a multi-sector reform agenda in 2006 with the objective of improving the competitiveness of the economy. These reforms had considerable success in accelerating the rate of growth, reducing unemployment and speeding up the pace of diversification of the economy through the development of new sectors. The reforms created fiscal space to allow the authorities to perform a counter-cyclical policy in early 2009 to mitigate the negative impacts of the global financial crisis. Measures were comprehensive, well-targeted, and temporary and relied on large infrastructure projects aimed at removing the bottlenecks in transport sector. The fiscal stimulus contributed to absorb the shock of the 2007/08 global crisis, which was reinforced in August 2010, with a second 4 percent of GDP stimulus package to cushion the impact of a weaker euro.
The new government formed in 2010 embarked on a second generation reform program to continue improving Mauritius’ competitiveness as it transitions to more diversified export markets, ensuring also that inclusive growth reaches the entire population. Key elements of this reform are the improvement of (i) delivery of public services, including the civil service and public enterprises; (ii) infrastructure development, to overcome critical bottlenecks, particularly on transportation; (iii) skills development to enhance productivity and better integrate those parts of the population that lag behind; (iv) social protection to provide empowerment opportunities to the more vulnerable population; and (v) further liberalization of non-tariff measures to improve trade competitiveness.
The economic outlook for Mauritius is positive, but volatility may persist in the short-term, contingent on external economic conditions. The projection for economic growth is 4.1 percent for 2011, picking up slightly to 4.4 percent in 2014. Accelerated and sustainable recovery depends on a stable external environment coupled with successful implementation of the second generation of reforms aimed at diversifying the economy and promoting private sector development. The fiscal and external balances are expected to falter but should remain under control. The fiscal deficit is projected around 4.8 percent of GDP in 2011 and 4.5 percent in 2012, while the current account deficit is expected to be 13 percent in 2011 to improve progressively toward seven percent in 2014. However, vulnerability exists and increasing global food and energy prices accentuated domestic inflationary pressures such that the inflation rate increased from 3.9 percent in November 2010 to 6.8 percent in February 2011. To prevent a rise in consumer price inflation from generating second- round effects, the Central Bank increased on March 28, 2001 the Repo rate by 50 basis points. No major changes in monetary policy are expected, leading to a stable inflation rate in the range of four to five percent per year. Also, risks to fiscal sustainability still exist, particularly as regards the external environment, and debt sustainability. This issue could become a source of concern since the country is embarking on an ambitious public investment program that is likely to increase public debt above the 60 percent threshold, to be reached by 2018, as defined by the Public Debt Law. Finally, sluggish demand in the Euro zone may further exert pressure on the balance of payments and the local currency.
Development Challenges
Mauritius has a successful development record, but many challenges remain. The external shocks demonstrated the heavy reliance of the economy in restricted sectors and markets. However, Mauritius is not yet ready to take advantage of the global re-balancing of export markets. It is not yet well integrated in the production chain and final markets of those countries which are bound to increase domestic absorption (particularly in Asia). The main constraints that the country faces are the following: (i) infrastructure - mainly in terms of road congestion around the capital, increasing costs (fuel), and production losses (waiting time), (ii) scarcity of skilled human resources due to limited capacity to reform the traditional education system, inability to retain the best brains in the country and limited possibility to make use of diasporas, and (iii) weak institutional capacity to review the regulatory framework to reduce unnecessary and redundant measures that reduce competitiveness .
Global economic uncertainty is rising. The current external environment, with financial and debt concerns in the US and Europe, has triggered substantial fall of stock markets around the globe. The fiscal consolidation programs in the US and Europe to ease debt concerns will reduce already low growth prospects for 2011 and 2012. All this may affect FDI and the international financial sector, with concerns in the media that a double economic recession may take place in the US and Europe (65 percent of total export market for Mauritius), deteriorating global economic growth.
In Mauritius, the economy is already showing signs of slowdown. National projections for GDP growth are less optimistic. While in late 2010, a gradual recovery of GDP growth was expected at 5 percent (4.5 percent by 2013), the economy is now projected to grow around 4 percent until 2014.
However, Mauritius has room of maneuver in the short run. Net international reserves are at a high level (US$ 2.9 billion, 40 months of imports) thanks to record FDI, government external borrowing, and large net capital inflows to the banking sector. The government has ample liquidity in the Central Bank. Excess liquidity conditions persist facilitating government financing. Average financial cash ratio stood at 8 percent in June 2011 compared with the minimum reserve requirement of 7 percent. Petroleum and food import prices may reduce in the short run as the result of a global slowdown. With lower FDI, appreciation pressure on the Rupee may ease.
But Mauritius should accelerate the reforms to respond to potential falls in FDI, exports and GDP growth in the medium term. Diversification efforts, both in terms of climbing the value chain and reorienting exports toward high economic growth middle income countries (China, India, Russia and the African continent) are underway but need to be accelerated to substitute for the European market. Reforms on trade barriers, education and infrastructure are critical to achieve this. Slower global economic growth would depress domestic growth and tax revenues, yet pressure to finance government priorities and a large investment program would likely continue. High projected budget deficit (4.3 percent of GDP in 2011) and high public debt, which is projected to decline moderately to 58 percent of GDP by 2013 will limit the Government capacity to implement a counter cyclical fiscal policy similar to the one that was so successful during the 2008/10 international downturn.
In this context, fiscal consolidation needs to accelerate, additional public revenues should be used to reduce the fiscal deficit and achieve substantial efficiency gains in the budget to ensure effective expenditure in priority areas, including strengthening safety net systems to cope with the poverty impact of a potential downturn (including increasing unemployment).
Mauritius has solid economic fundamentals: open to FDI (465 US million in 2010, 5.3 percent of GDP), export oriented (5,000 US million in 2010, 57 percent of GDP), high standards of governance (39th in the Transparency International Corruption Perceptions Index) and business friendly (the top-ranked African country in business climate, ranked 20th globally in the 2010 World Bank Doing Business report).
The country is ranked high in terms of competitiveness, investment climate and governance. The World Economic Forum’s global competitiveness index ranked Mauritius at 55 out of 133 countries in 2010 - 2011, behind only South Africa in the Africa Region. It topped the 2008 Mo Ibrahim Index of African Governance, and is ranked 36 in the AT Kearney Global Services Location Index 2011. The remarkable performance of the economy is attributed to sound economic governance, accelerated reforms to sustain long-term growth and effective state-business relations. These factors together with timely and targeted responses helped Mauritius to weather the negative effects of the global crisis.
Mauritius embarked on a multi-sector reform agenda in 2006 with the objective of improving the competitiveness of the economy. These reforms had considerable success in accelerating the rate of growth, reducing unemployment and speeding up the pace of diversification of the economy through the development of new sectors. The reforms created fiscal space to allow the authorities to perform a counter-cyclical policy in early 2009 to mitigate the negative impacts of the global financial crisis. Measures were comprehensive, well-targeted, and temporary and relied on large infrastructure projects aimed at removing the bottlenecks in transport sector. The fiscal stimulus contributed to absorb the shock of the 2007/08 global crisis, which was reinforced in August 2010, with a second 4 percent of GDP stimulus package to cushion the impact of a weaker euro.
The new government formed in 2010 embarked on a second generation reform program to continue improving Mauritius’ competitiveness as it transitions to more diversified export markets, ensuring also that inclusive growth reaches the entire population. Key elements of this reform are the improvement of (i) delivery of public services, including the civil service and public enterprises; (ii) infrastructure development, to overcome critical bottlenecks, particularly on transportation; (iii) skills development to enhance productivity and better integrate those parts of the population that lag behind; (iv) social protection to provide empowerment opportunities to the more vulnerable population; and (v) further liberalization of non-tariff measures to improve trade competitiveness.
The economic outlook for Mauritius is positive, but volatility may persist in the short-term, contingent on external economic conditions. The projection for economic growth is 4.1 percent for 2011, picking up slightly to 4.4 percent in 2014. Accelerated and sustainable recovery depends on a stable external environment coupled with successful implementation of the second generation of reforms aimed at diversifying the economy and promoting private sector development. The fiscal and external balances are expected to falter but should remain under control. The fiscal deficit is projected around 4.8 percent of GDP in 2011 and 4.5 percent in 2012, while the current account deficit is expected to be 13 percent in 2011 to improve progressively toward seven percent in 2014. However, vulnerability exists and increasing global food and energy prices accentuated domestic inflationary pressures such that the inflation rate increased from 3.9 percent in November 2010 to 6.8 percent in February 2011. To prevent a rise in consumer price inflation from generating second- round effects, the Central Bank increased on March 28, 2001 the Repo rate by 50 basis points. No major changes in monetary policy are expected, leading to a stable inflation rate in the range of four to five percent per year. Also, risks to fiscal sustainability still exist, particularly as regards the external environment, and debt sustainability. This issue could become a source of concern since the country is embarking on an ambitious public investment program that is likely to increase public debt above the 60 percent threshold, to be reached by 2018, as defined by the Public Debt Law. Finally, sluggish demand in the Euro zone may further exert pressure on the balance of payments and the local currency.
Development Challenges
Mauritius has a successful development record, but many challenges remain. The external shocks demonstrated the heavy reliance of the economy in restricted sectors and markets. However, Mauritius is not yet ready to take advantage of the global re-balancing of export markets. It is not yet well integrated in the production chain and final markets of those countries which are bound to increase domestic absorption (particularly in Asia). The main constraints that the country faces are the following: (i) infrastructure - mainly in terms of road congestion around the capital, increasing costs (fuel), and production losses (waiting time), (ii) scarcity of skilled human resources due to limited capacity to reform the traditional education system, inability to retain the best brains in the country and limited possibility to make use of diasporas, and (iii) weak institutional capacity to review the regulatory framework to reduce unnecessary and redundant measures that reduce competitiveness .
Global economic uncertainty is rising. The current external environment, with financial and debt concerns in the US and Europe, has triggered substantial fall of stock markets around the globe. The fiscal consolidation programs in the US and Europe to ease debt concerns will reduce already low growth prospects for 2011 and 2012. All this may affect FDI and the international financial sector, with concerns in the media that a double economic recession may take place in the US and Europe (65 percent of total export market for Mauritius), deteriorating global economic growth.
In Mauritius, the economy is already showing signs of slowdown. National projections for GDP growth are less optimistic. While in late 2010, a gradual recovery of GDP growth was expected at 5 percent (4.5 percent by 2013), the economy is now projected to grow around 4 percent until 2014.
However, Mauritius has room of maneuver in the short run. Net international reserves are at a high level (US$ 2.9 billion, 40 months of imports) thanks to record FDI, government external borrowing, and large net capital inflows to the banking sector. The government has ample liquidity in the Central Bank. Excess liquidity conditions persist facilitating government financing. Average financial cash ratio stood at 8 percent in June 2011 compared with the minimum reserve requirement of 7 percent. Petroleum and food import prices may reduce in the short run as the result of a global slowdown. With lower FDI, appreciation pressure on the Rupee may ease.
But Mauritius should accelerate the reforms to respond to potential falls in FDI, exports and GDP growth in the medium term. Diversification efforts, both in terms of climbing the value chain and reorienting exports toward high economic growth middle income countries (China, India, Russia and the African continent) are underway but need to be accelerated to substitute for the European market. Reforms on trade barriers, education and infrastructure are critical to achieve this. Slower global economic growth would depress domestic growth and tax revenues, yet pressure to finance government priorities and a large investment program would likely continue. High projected budget deficit (4.3 percent of GDP in 2011) and high public debt, which is projected to decline moderately to 58 percent of GDP by 2013 will limit the Government capacity to implement a counter cyclical fiscal policy similar to the one that was so successful during the 2008/10 international downturn.
In this context, fiscal consolidation needs to accelerate, additional public revenues should be used to reduce the fiscal deficit and achieve substantial efficiency gains in the budget to ensure effective expenditure in priority areas, including strengthening safety net systems to cope with the poverty impact of a potential downturn (including increasing unemployment).
STRATEGY
The focus of the World Bank’s program is helping Mauritius stay the full course of competitiveness reforms and reducing vulnerability to external shocks through re-balancing trade.
The Bank's role in Mauritius is evolving, reflecting the country's past 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) loans (most African countries borrow from the International Development Association (IDA), the World Bank's soft-lending arm for the poorest countries). The World Bank Group is working closely with the restructured Ministry of Finance and Economic Development (MoFED), various sector Ministries, and other development partners active in Mauritius.
The Country Partnership Strategy (CPS) establishes a framework for World Bank engagement in Mauritius until 2013. The CPS, which was prepared in close coordination with the European Union, was structured around the Government’s four pillars of reform: fiscal consolidation and improving public sector efficiency; improving trade competitiveness; improving investment climate; and democratizing the economy through participation, inclusion and sustainability. The mid-term review of the CPS this year provides an update on recent developments in Mauritius including the impact of the global economic recession and reports on progress in implementing the CPS. While the objectives of the CPS remain relevant and aligned to the country’s development agenda the programs have been adjusted to respond to the changing global environment. The Progress Report provides the context and rationale for the proposed WBG program for the remainder of the CPS period which has been extended to FY2015 to align with the elections.
The country is now embarking on a second generation of reforms and the Bank is supporting the reform and investment programs through a new series of budget support operations over the next 4 years, in an estimated amount of US$20 million per year. Focusing on Public Sector Performance, this operation would have three pillars: (i) social protection; (ii) efficiency of the public sector; and (iii) competitiveness.
The Government recently cancelled two investment projects; the Mauritius Economic Transition Technical Assistance Project (METAP) and Manufacturing and Services Development and Competitiveness Project (MSDCP) and requested the bank to support its competitiveness agenda, which remains critical for its vision of a knowledge-led economy, under a new Sector DPL series. The three main areas of focus are: (i) enhancing competitiveness through skills development and technology upgrading; (ii) access to finance and regulatory reform for SME growth; and (iii) ICT and e-Gov support for increased efficiency and transparency gains.
The Bank is presently engaged in the provision of an investment loan of around US$50 million for road investment and technical assistance in infrastructure projects including water, energy, sanitation, transportation and food protection where around US$4.2 million has been disbursed. The Bank and Government are formalizing a terms-of-reference outlining a series of Fee-Based Technical Assistance Services to be provided by the Bank to help the Government reach its goals in infrastructure development
The Bank has been providing just-in-time technical and analytical support on a variety of issues and a Fee-Based Service Agreement is being signed to allow a more substantial dialogue on specific issues of interest with the Government. So far, we have provided just-in-time policy support in trade, competitiveness, skills development and technology absorption, social protection, financial sector development and procurement.
A number of knowledge products are in the pipeline on a variety of issues: private sector development, public expenditure review, tertiary education, e-Gov initiatives, doing business reforms, education, health and social protection.
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