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Mr. James Y. Yao, Mr. Gamal Z El-Masry, Padamja Khandelwal, and Mr. Emilio Sacerdoti

Abstract

Mauritius has one of the more sophisticated financial systems in Africa, a system that is soundly capitalized and profitable. Assets of the banking system represent about 100 percent of GDP. While the financial sector was already relatively well developed at independence, the robust economic performance over the last two decades strongly contributed to its further expansion. At the same time, the solidity and sophistication of the financial system also played a key role in supporting the diversification of the economy. It can be argued therefore that a virtuous cycle was established from early on, in which the financial system and the productive sector strengthened in parallel, with each sector providing support to the other and contributing to its modernization and deepening. A sound regulatory framework and monetary policies geared to macroeconomic stability provided a key contribution to the soundness of the financial system.

Mr. James Y. Yao, Mr. Gamal Z El-Masry, Padamja Khandelwal, and Mr. Emilio Sacerdoti

Abstract

Mauritius has achieved remarkable success since its independence in 1968. It has one of the highest per capita GDPs in Africa, the economy has diversified from complete dependence on the sugar crop, into textiles, then tourism, and recently information and communication services. This paper examines the factors that have contributed to this impressive growth, including macroeconomic stability, a solid institutional framework, political stability, an efficient administration, a favorable regulatory framework, and a well-developed financial system, and outlines the challenges that remain to ensure continued sustainable growth in Mauritius.

Mr. James Y. Yao, Mr. Gamal Z El-Masry, Padamja Khandelwal, and Mr. Emilio Sacerdoti

Abstract

Despite strong economic growth, averaging just below 6 percent per year over the last two decades, a “U”-curve phenomenon of Mauritian unemployment can be observed (Figure 5.1). The unemployment rate plunged from about 21 percent to less than 4 percent from the early 1980s to the early 1990s. Notwithstanding sustained economic growth averaging 5½ percent per year between 1991 and 2002, the declining trend in unemployment was reversed, and the rate steadily increased, reaching approximately 10 percent by end-2002. According to the 2000 census, a majority of the unemployed were young, had never held a job, had failed primary or secondary school education, had no technical or vocational training, and were single and family supported. Despite the rising unemployment rate, two paradoxical facts about the 1990s can be noted: (1) the EPZ was crippled by skilled labor shortages and was compelled to import foreign workers, mainly from China; and (2) the number of unfilled skilled-job vacancies, especially in the financial services sector, increased over the decade.21 There is little consensus in Mauritius as to the exact nature and causes of the unemployment problem.22

Mr. James Y. Yao, Mr. Gamal Z El-Masry, Padamja Khandelwal, and Mr. Emilio Sacerdoti

Abstract

The purpose of this paper is to present the remarkable achievements of the economy of Mauritius since independence, and to highlight the factors that have made this performance possible. The record is impressive. Mauritius has achieved one of the highest per capita gross domestic products (GDPs) in Africa: about US$4,600 in 2003, up from about US$320 in the early 1970s. The economy, which at independence in 1967 was dependent entirely on the sugar crop, has been able to diversify rapidly, first into textiles, then into tourism, and more recently into information and communication services. In the process, the large pool of unemployed labor has been absorbed, and a remarkable macroeconomic stability has been maintained over the last 20 years. The country is well positioned to benefit from the increasing demand for information processing.

Mr. James Y. Yao, Mr. Gamal Z El-Masry, Padamja Khandelwal, and Mr. Emilio Sacerdoti

Abstract

A critical question in the search for an explanation of Mauritius’s successful growth performance is why the Mauritian economy has been able to continuously diversify its production base.

Mr. James Y. Yao, Mr. Gamal Z El-Masry, Padamja Khandelwal, and Mr. Emilio Sacerdoti

Abstract

Mauritius is a small island economy in a remote section of the Indian Ocean. The island was visited by Malays, Arabs, and Portuguese in the sixteenth century. The first colonial settlement in Mauritius, however, was made by the Dutch, who proclaimed it a Dutch colony in 1638 but then left in 1710. The French ruled the island until 1810, when they lost it to the British during the Anglo-French war. After the abolition of slavery in 1833, indentured laborers were brought from India to work in the sugarcane fields. As a result, Hindu Indians now form the majority of the population, followed by Creoles (of mixed, predominantly African, origin), Muslim Indians, Chinese, and Europeans. Mauritius has been independent since 1968 and became a republic in 1992.

Mr. James Y. Yao, Mr. Gamal Z El-Masry, Padamja Khandelwal, and Mr. Emilio Sacerdoti

Abstract

Over the past 25 years, Mauritius’s public finances have experienced three distinct phases: large fiscal deficits in the early 1980s, followed by a period of fiscal consolidation and discipline during the late 1980s and early 1990s, and finally the reemergence of fiscal imbalances from the second half of the 1990s to date (see Table 6.1).

Mr. James Y. Yao, Mr. Gamal Z El-Masry, Padamja Khandelwal, and Mr. Emilio Sacerdoti

Abstract

Table 3.1 sketches a brief synopsis of the history of industrial transformation in Mauritius, indicating which were the principal growth industries in each period. In the 1970s, the sugar sector, which includes both cane cultivation and sugar milling, accounted for over 26 percent of GDP and formed the largest sector of the economy. The export-processing zone (EPZ), which is dominated by the clothing and textiles industry, took off in the 1980s. The manufacturing share of GDP climbed rapidly from 4.5 percent in 1982 to 11.6 percent in 1986, equivalent to the percentage contribution to GDP made by sugar cultivation. The sugar sector’s contribution to GDP declined, and by the beginning of the 1990s value added in the EPZ was higher than in the agricultural sector. Rapid growth in tourism and financial services during the 1990s further transformed the structure of the economy, and turned Mauritius into a four-pillar economy.

Mr. James Y. Yao, Mr. Gamal Z El-Masry, Padamja Khandelwal, and Mr. Emilio Sacerdoti

Abstract

The discussion in the previous chapters leads to some key conclusions. First, the Mauritian growth performance since the 1970s has been exceptional.

Mr. James Y. Yao, Mr. Gamal Z El-Masry, Padamja Khandelwal, and Mr. Emilio Sacerdoti

Abstract

As in many parts of the world, including developed countries, the modalities of conducting monetary policy in Mauritius evolved from strong reliance on controls to more market-based mechanisms. As in other countries, the 1970s were turbulent years for the conduct of monetary policy, and external price shocks, together with excessively expansionary domestic polices, led to an acceleration of inflation. Macroeconomic stability was regained in the early 1980s through the pursuit of appropriate adjustment policies and was maintained successfully thereafter. Overall, the monetary authorities exhibited a remarkable capacity to correct rapidly for slippages. They were steadfast in promoting the deepening of the financial system and in creating more sophisticated instruments for the conduct of monetary policy. They abandoned direct controls, moving to rely on interventions through the money markets, which gradually matured and became a more efficient channel for the transmission of monetary policy impulses. In all, the sound monetary and exchange rate policies contributed to foster an environment favorable to sustained growth.