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Mauritius: Country Brief

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 with an estimated population of 1.25 million and a population density of 628 people per square kilometers. With a population growth rate estimated at .5%, official projections show that Mauritius will soon face the ageing population syndrome (population above age 60 increase from nine percent in 2000 to 23% 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$10,809 million in 2011 and is considered to be an upper middle income country with its gross national income (GNI) per capita at US$8,230. 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%, which is low compared to the average in Sub-Saharan Africa. Despite its small size, regional variations in poverty exist in Mauritius, with incidence of relative poverty higher in urban areas (12.4%) than in rural areas (eight percent).

In Mauritius, the Prime Minister is the head of the government. The ruling party under the Leadership of Prime Minister Dr. Navinchandra Ramgoolam, leader of the Mauritius Labour Party, won the general election in May 2010 with the Parti Mauricien Social Democrate (PMSD) and a new partner, the Mouvement Socialiste Militant (MSM). In July 2011 one of the parties of the coalition, the MSM, quit the government in protest of the arrest of the former Health Minister following an enquiry into corruption allegations. A new cabinet was formed in August 2011 and a new government program was approved by Parliament in May 2012. The ruling alliance still under the leadership of Dr Navinchandra Ramgoolam as Prime Minister and with the leader of PMSD as Vice Prime Minister and Minister of Finance an Economic Development, has a slim majority of four seats.

Economy

Mauritius has solid economic fundamentals: open to foreign direct investment (FDI) (US$273million in 2011, 2.9% of GDP), export oriented (US$5,900 million in 2011, 53% of GDP), high standards of governance (46th in the 2011 Transparency International Corruption Perceptions Index) and business friendly (the top-ranked African country in business climate, ranked 23rd globally in the 2011 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 54 out of 133 countries in 2011 - 2012, behind only South Africa in the Africa Region. It topped the 2011 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.

Since 2010, the government 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, infrastructure development to overcome critical bottlenecks, particularly in transportation, skills development to enhance productivity and better integrate those parts of the population that lag behind, social protection to provide empowerment opportunities to the more vulnerable population, and further liberalization of non-tariff measures to improve trade competitiveness.

The economic outlook for Mauritius is positive, but uncertain contingent on external economic conditions and acceleration of reforms. The original economic outlook for 2011 projected a return of Mauritius’ economic momentum to its historical growth trajectory of 4.5% annual growth. However, the advanced economies fiscal consolidation programs and the increasing debt and financial worries in Europe took a toll in the Mauritian economy, particularly during the second semester of 2011, and real GDP grew at 4.1%. The main contributors to GDP growth were real estate (0.8 percentage point), manufacturing (0.6 percentage point), transport and communications (0.5 percentage point) and financial intermediation (0.5 percentage point). The fiscal policy was less expansionary than envisaged due to delays stemming from the limited capacity to execute large infrastructure projects, which resulted in an overall deficit of 3.4% of GDP (a reduction of over two percentage points of GDP relative to projections and ½ percentage points relative to 2010, when considering extra budgetary funds). Monetary policy was tightened and the key repo rate increased cumulatively by 65 basis points in response to excess liquidity and inflationary developments. Also, while goods exports increased 16% (with strong growth registered across all major tradable industries) and tourism receipts grew 12%, the 17% increase in imports widened the current account deficit to some 10% of GDP, more than covered with portfolio flows and loan disbursements to the government and parastatal bodies. The Bank of Mauritius (BOM) managed to increase its net international reserves in nominal terms, which now cover 4.4 months imports of goods and services.

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 fully 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:

  • Infrastructure - mainly in terms of road congestion and water delivery
  • 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
  • Large and relatively inefficient public companies and parastatals

Prospects for 2012 call for slower GDP growth associated to substantial external uncertainty. Europe continues to be Mauritius major trade and investor partner and the European crisis points to a difficult year ahead. GDP growth projections for 2012 have been reduced to 3.2% (compared to 4.2% before). The main channels of transmission of economic shocks from the global economy to Mauritius are tourism (which represents 26% of the country’s total exports of goods and services), FDI, and commodity imports. The European economic downturn is having a significant impact on Mauritian exports with drops in major European markets during the first semester of 2012 both in terms of tourist arrivals and exports. Although this has been partially compensated with increasing tourists and exports from Africa and Asia, overall external sales remained lackluster during the first semester of 2012. Imports, in turn, rose 11.8% during the first semester of 2012, lead by increasing value of food imports (11.3%) and fuel (9.4%). To respond to this challenge Mauritius should accelerate the reforms to diversify the economy, 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). Also, reforms on trade barriers, education and infrastructure are critical to achieve this. In this context, fiscal consolidation needs to accelerate to achieve substantial efficiency gains in the budget and ensure effective expenditure in priority areas, including strengthening safety net systems to cope with the poverty impact of a potential downturn (including increasing unemployment).

 

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 last year provided 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 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). The Bank assisted Mauritius in implementing a series of major reforms to diversify the economy and respond to external shocks, with the support of a series of Bank development policy loans (DPLs) for a total amount of US$210 million and to raise efficiency of the public sector and support private sector competitiveness with the support of two new series of DPLs for US$20 million and US$15 million. 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, in the preparation of the of the second year of the two DPLS series and in the preparation of a new investment loan of around US$50 million to improve road safety and asset management in the transport sector. The Bank lending has been complemented with just-in-time technical and analytical support on a variety of issues including infrastructure, health, tourism, education, social protection and poverty, public enterprise and civil service reforms, finance, diaspora, and institutional strengthening with the government. A number of knowledge products are in the pipeline related to private sector development, public expenditure review, tertiary education, e-Gov initiatives, doing business reforms, education, health and social protection.

 

The Bank has a very strong partnership with Mauritius, a middle-income high performer country that during the last five years implemented a series of major reforms to diversify the economy and respond to external shocks, with the support of a series of Bank development policy loans (DPLs) and investment lending projects. Results have been encouraging but Mauritius still lags upper middle-income country comparators in critical development areas such as public sector efficiency and adequate technical skills and infrastructure required to further diversify into high value-added activities and to develop a knowledge-based economy. While Mauritius is a well known successful development story, growing international competition and a volatile external environment call for continuous reforms.

With facilitation from the 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 Mauritius government has forged a strong partnership with the World Bank and other development partners (DPs) and benefited from technical and financial assistance. The DPs have developed a good working relationship among themselves and meet often both at the head-of-delegation level and at the technical level to share views.

 

Last updated October 2012




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