Recent Economic Developments and Selected Issues

This Recent Economic Developments and Selected Issues paper on Mauritius highlights that the real GDP growth for the country during 1993/94–1995/96 averaged about 4.1 percent, compared with 6.0 percent for the preceding three years. The decline in GDP growth, especially in 1994/95, was largely on account of the adverse impact of Cyclone Hollanda, which hit the island in February 1994. The negative effects of the cyclone were the most pronounced in the sugar sector, where output in 1994 declined by 12 percent compared with 1993.


This Recent Economic Developments and Selected Issues paper on Mauritius highlights that the real GDP growth for the country during 1993/94–1995/96 averaged about 4.1 percent, compared with 6.0 percent for the preceding three years. The decline in GDP growth, especially in 1994/95, was largely on account of the adverse impact of Cyclone Hollanda, which hit the island in February 1994. The negative effects of the cyclone were the most pronounced in the sugar sector, where output in 1994 declined by 12 percent compared with 1993.

I. Introduction

1. The island of Mauritius lies in the Indian Ocean, nearly 1,000 km east of Madagascar. The Republic of Mauritius, with a population of slightly more than 1.1 million people, comprises the island of Mauritius, the small island of Rodrigues (some 560 km further to the east), and a few smaller and uninhabited islands to the north. Mauritius lies within a cyclone-prone area of the Indian Ocean, and the cyclone season is usually between December and March. Mauritius gained independence from Britain in 1968 and was declared a republic in 1992.

2. At independence, the Mauritian economy was almost entirely reliant on sugar. However, since then it has evolved significantly. Sustained policies of diversification, liberalization and export orientation, coupled with the country’s political stability and completely bilingual labor force, have succeeded in attracting foreign investment. As a result, economic growth is currently well balanced around the so-called four pillars of the economy, namely agriculture, principally sugar; tourism; manufacturing for export, mainly the Export Processing Zone (EPZ); and more recently, financial and offshore services.

II. Income and Production

A. Aggregate Demand and Supply

Output developments

3. While the Mauritian economy has continued to expand during the past three years, output growth has occurred at a slower rate than during the early 1990s. Thus, real GDP growth during the period 1993/94 to 1995/96 averaged about 4.1 percent, compared with 6.0 percent for the preceding three years (Table 1; Chart 1). The decline in GDP growth, especially in 1994/95, was largely on account of the adverse impact of Cyclone Hollanda which hit the island in February 1994. The negative effects of the cyclone were the most pronounced in the sugar sector, where output in 1994 declined by 12 percent compared with 1993, which itself had seen a marked drop in sugar production as a result of severe drought (Appendix II, Tables I and VIII). Preliminary estimates for 1995/96 suggest that GDP growth has recovered to about 4.7 percent, thanks, in part, to a rebound in sugar production.



Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Sources: Central Statistical Office; Ministry of Finance; and Bank of Mauritius.

4. In the EPZ sector, real output growth during 1994 and 1995 averaged 4.7 percent, compared with 6.0 percent during 1992 and 1993. This decline followed a pattern of steadily diminishing growth rates in the EPZ sector since the second half of the 1980s, reflecting some erosion of international competitiveness in the textile sector (Appendix II, Table I).1 However, this trend was reversed in 1996 as a number of customers, who had previously moved to suppliers in Asia, have reportedly returned.

5. There have also been some marginal changes in the structure of GDP. Thus, during 1994 and 1995, the share of agriculture in GDP has continued to decline, while that of the services industry (including trade, transport, and finance) continued to grow. Also, after strong growth in the early 1990s, the construction industry contracted by about 2 percent in 1995, largely on account of an acute scarcity of cement in the country resulting from delivery problems.

Aggregate expenditure and savings

6. Domestic savings during 1994/95 and 1995/96 averaged approximately 24.5 percent of GDP, down from an average of 28.2 percent of GDP during the preceding two years. The drop in savings was entirely attributable to a deterioration in the public sector’s savings performance (Table 3). While government disposable income, as a percent of GDP, declined from an average of 21.8 percent during 1992/93–1993/94 to 18.9 percent during 1994/95–1995/96, government consumption remained substantially unchanged during the same period at about 20 percent. As a result, government savings declined by an average of 3.7 percent of GDP between 1992/93–1993/94 and 1994/95–1995/96 (Tables 3 and 11).

7. Private sector savings remained largely unchanged during the last four years. This occurred because the increase in private sector disposable income from 81.2 percent of GDP during 1992/93–1993/94 to 83.2 percent of GDP during 1994/95–1995/96—owing largely to a reduction in the tax burden that averaged almost 3 percent of GDP—was used to increase consumption from an average of 55.5 percent of GDP during 1992/93–1993/94 to an average of 57.4 percent of GDP during 1994/95–1995/96 (Tables 3 and 11).

8. Meanwhile, domestic investments slowed down, most significantly during 1995/96, largely as a result of weak private sector investments which in turn were partly attributable to a “wait-and-see” attitude on the part of the business community during the parliamentary election period and the subsequent change of government. The sharp drop in private sector investment between 1994 and 1995 is also due in part to the one-time purchase in 1994 by Air Mauritius of a large aircraft from the European Airbus consortium. However, an analysis of the sectoral breakdown of gross capital formation also reveals a decline in 1995 of private sector capital formation in sectors other than transport equipment, notably in manufacturing, construction, and finance, insurance, and other services (Appendix II, Table V).

9. The resulting saving-investment gap for the economy as a whole (equivalent to the external current account deficit) narrowed substantially to 0.9 percent of GDP in 1995/96, compared with an average of 4.9 percent of GDP during 1993/94–1994/95. The improvement in the resource gap has been, as shown above, the result of a weakening of investment activity rather than a strengthening of domestic savings (Table 3; Chart 2).



(In percent of GDP)

Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Sources: Central Statistical Office; Ministry of Finance; and Bank of Mauritius.

B. Sectoral Developments

Sugar sector

Sectoral characteristics

10. The sugar sector remains an important source of foreign currency for the country, accounting in 1995/96 for nearly 15 percent of earnings from exports of goods and services. However, its prominent position in this regard has been surpassed by the EPZ (nearly 45 percent) and tourism (18 percent) sectors, thus reflecting the ongoing diversification of the Mauritian economy (Appendix II, Table XLIII). The sugar sector’s share of GDP in 1994 and 1995 was in the range of 6 percent, down from about 7.5–8 percent in the early 1990s (Appendix II, Table II). Sugarcane still covers nearly half of Mauritius’s total land area and more than 80 percent of its cultivated land. Moreover, about 14 percent of the work force is employed in the sugar sector (including milling operations). The sugar sector remains extremely vulnerable to weather conditions, in particular droughts and cyclones.

Production developments

11. Reflecting the sector’s vulnerability to adverse weather, the sugar crop has fluctuated considerably since the early 1990s. After a bumper harvest resulting in 643,200 tons of sugar production in 1992, a prolonged drought reduced the 1993 sugar output to 565,100 tons. In February 1994, the intense tropical Cyclone Hollanda hit the island’s northwest coast. In spite of favorable climatic conditions during the remainder of the sugarcane growing period, sugar production for 1994 was severely affected and ended the year at 500,200 tons, or 11.5 percent lower than the previous year. In 1995, less severe cyclones precluded an expected strong recovery of sugar production, and sugar output reached only 540,000 tons, some 85,000 tons below the average for the ten-year period 1984–93 (Table 4; and Appendix II, Table VIII). The 1995 sugar production included a costly mini-harvest, between February and June, that is, outside the usual sugarcane harvesting season of July-November. The mini-harvest, following the disappointing 1994 sugar crop, was seen as necessary to meet Mauritius’s sugar export commitments to the European Union for the delivery year ending June 15, 1995. Based on data available at the end of November 1996, the 1996 sugar production is estimated to have increased to about 590,000 tons, its highest level since 1992.

12. Consequently, Mauritius is expected to fulfill its 1996/97 commitments to the European Union as well as to the United States. Sugar exports, which are closely related to the level of output, have also fluctuated considerably in the recent past, with volumes falling from a peak of 588,700 tons in the 1992/93 delivery year to 492,200 tons in 1994/95, and recovering to 518,800 tons in 1995/96 (Table 4; and Appendix II, Table XI). Meanwhile, the area under cultivation declined from well over 190,000 arpents2 in the early 1990s to slightly more than 182,000 arpents in 1995, as urbanization has continued to encroach on agricultural land (Appendix II, Table VIII).

13. In June 1995, the Minister of Agriculture commissioned a task force, headed by Dr. Régis Julien, the Director of the Mauritian Sugar Industry Research Institute, to study and propose appropriate policy measures to increase the efficiency and output of the sugar sector in the wake of Mauritius’s increased quota access to the European market under the Special Preferential Sugar Agreement signed on June 1, 1995 (see para. 17). The Julien Report recommended a number of measures, including varietal improvements; enhancement of irrigational facilities; wider use of fertilizers; rehabilitation of hitherto fallow sugarcane lands; development of sugarcane plantations on former tea-growing areas; enhancement of sugar recovery rates at the factory level; and regrouping of small plots of land into larger units for wider use of derocking and mechanization techniques. If implemented on a broad scale, these measures were estimated to increase sugar output by almost 60,000 tons by 1998. However, progress on this front has been mixed. While some sugarcane has started to be harvested from converted tea lands, efforts to regroup small plots into viable larger entities, with centralized Farmers’ Service Centers providing agricultural services to member planters, have faced sociological and psychological difficulties at the small farmers’ level. In addition, the legal framework, including previously established government transfer and incentive systems offered to small farmers that would be lost in the event of collectivization, has proven to be a serious impediment to the advancement of this process.

14. The sugar industry also produces food crops,3 as well as molasses and bagasse, the latter being by-products of the refining process. Production of food crops on sugar estates grew by 60 percent over a six-year period to reach nearly 71,000 tons in 1994. Molasses output averaged some 147,000 tons during 1994 and 1995, providing additional earnings of slightly more than 2 percent of the value of sugar exports during that period (Appendix II, Table XLIV). Bagasse is used during the harvest season to generate electricity.4 Electricity in excess of the sugar industry’s own energy requirements is supplied to the national grid of the Central Electricity Board (CEB). Fourteen sugar factories supplied an average of 124 GWh electricity to the national grid during 1994 and 1995, about 12 percent of the country’s electricity production (Appendix II, Table XVIII).

Marketing, producer prices, and industry finances

15. Mauritius’s sugar output is marketed through a central organization called the Mauritius Sugar Syndicate (MSS). The MSS is responsible for the export and domestic sale of the country’s sugar production, and the net proceeds are distributed to the large estates as well as to small farmers on the basis of the average realized price per ton (Appendix II, Table XII). The MSS also subscribes on behalf of its members to an elaborate insurance scheme with the Sugar Insurance Fund Board (SIFB) to compensate the country’s sugar sector against financial losses stemming from droughts and cyclones.5

16. While the world sugar price is subject to considerable volatility (Chart 3; Appendix II, Table X), Mauritius’s sugar exports are shielded from the price fluctuations in the world sugar market by preferential access agreements with the European Union (EU) and the United States. Under the provisions of the Sugar Protocol signed between the EU and the African, Caribbean, and Pacific (ACP) sugar supplying states and annexed to the Lomé Convention, Mauritius is allocated an annual quota of 507,000 tons (representing the largest share among ACP states, equivalent to about 35 percent of the total allocation) for delivery to the EU under a guaranteed price. For the 1995/96 quota year, the guaranteed price was ECU 523.70 per ton (c.i.f.).6



Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Sources: Mauritius Sugar Syndicate; and IMF, Economic Information System.1/ Deflated by the UN price index of manufactured exports.

17. As mentioned earlier, on June 1, 1995, the Special Preferential Sugar (SPS) Agreement was concluded between the EU, the ACP countries, and India, covering a six-year period ending June 30, 2001. Under the SPS Agreement, the sugar-producing states would supply the EU with nearly 354,000 tons of raw sugar annually to cover the so-called refiners’ deficit, mainly in the United Kingdom, Portugal, France, and Finland. Mauritius’s share under the SPS Agreement for 1995/96 was almost 94,000 tons at a guaranteed price of ECU 442.70 per ton (c.i.f.).

18. As part of the U.S. Farm Bill passed by Congress in April 1996, the U.S. Sugar Program was renewed for another seven-year period (1996–2002), thus continuing to provide Mauritian sugar preferential access to the U.S. market. For the 1995/96 delivery period ending September 30, Mauritius was allocated a quota of about 25,600 tons at a fixed price of US$497.14 per ton of raw sugar.

19. During 1995/96, Mauritius delivered to the EU 498,300 tons of sugar under the EU/ACP Sugar Protocol and 13,500 tons under the SPS Agreement,7 compared with 469,600 tons in the previous year. Given the higher price under the SPS Agreement and the sub-average crop in 1995/96, deliveries to the U.S. market declined from 14,200 tons in 1994/95 to 2,900 tons in 1995/96. Also, sales of predominantly special sugar products to the world market declined from a peak of 58,900 tons in 1992/93 to only 4,100 tons in 1995/96 (Chart 3; Appendix II, Table IX). Finally, local consumption, which averages about 40,000 tons a year, has, in the past few years, been covered almost entirely by imports of sugar from the world market.

20. The financial situation of the sugar industry has improved considerably since the removal of the export duty and surcharge in 1994. In spite of lower output, the industry’s overall profits almost doubled in 1994, to reach Mau Rs 717 million, also reflecting higher export unit values in rupees. In 1995, overall profits declined to Mau Rs 569 million, mainly on account of higher depreciation, and lower nonsugar income (Appendix II, Tables IX and XIII). The profitability of the sector during 1996/97 and 1997/98 will be affected by a new levy, which was announced in the 1996/97 budget, and which is expected to be borne by the 40 or so largest sugar enterprises. It will be calculated based on the 1996/97 sugar crop and paid over the 1996/97 and 1997/98 fiscal years, amounting in total to about Mau Rs 300 million.

Other agriculture

21. Nonsugar agriculture in Mauritius comprises a number of crops, mainly to cover local demand as well as some products destined for export. Food production including, inter alia, onions, tomatoes, garlic, and other fresh produce, has been on a steady rise in Mauritius, reaching 97,500 tons in 1995, an increase of about 20 percent from 1994, on account of higher yields and expanded arable areas. The increase in arable areas resulted from additional interline and rotational lands. Nonetheless, the tropical depressions and cyclones during 1994 and 1995 have also taken their toll on agricultural output, affecting in particular fresh fruits and vegetables, such as bananas, cabbages, and tomatoes (Appendix II, Table XIV). While current production can satisfy a growing share of the domestic demand for potatoes, chicken, pork, and a number of fresh vegetables, the main staples of the Mauritian diet—rice and wheat—have to be imported in large quantities, because the Mauritian land and weather conditions are not suitable for their efficient farming. Finally, local production of tobacco amounted to slightly more than 1,000 tons during 1994–95, providing more than 90 percent of leaf tobacco for the local manufacture of cigarettes.

22. Agricultural products being exported are mainly fish, tea, and cut flowers. Fish exports grew significantly, from Mau Rs 396 million in 1993 to Mau Rs 537 million in 1994, and to Mau Rs 657 million in 1995. In addition, cut flowers, predominantly Anthuria andraena, have experienced buoyant export growth over recent years, reaching 14 million stems, valued at Mau Rs 134 million in 1995 (almost double the 1990 exports in value terms), making Mauritius the world’s second largest exporter of these flowers. While tea has been a traditional export commodity, its production has declined steadily since 1992. The most significant drop occurred in 1995 when tea lands were converted to sugarcane growing areas in order to fulfill the higher-yielding additional quota under the SPS Agreement. Thus, tea production dropped by nearly 36 percent, from 30,300 tons in 1993 to 19,500 tons in 1995 (Appendix II, Table XV), and tea exports by more than 50 percent, from Mau Rs 103 million in 1993 to Mau Rs 51 million in 1995. Tea production is likely to further decline to about 12,000 tons in 1996 and stabilize at a level of about 6,000 tons beginning in 1997, which is expected to meet only domestic demand for tea.

23. Meanwhile, the Mauritian authorities are undertaking a wide range of measures aimed at diversifying and increasing the value added of the agricultural sector, including better mechanization; cultivation of higher-value crops; improvement of irrigational infrastructure; and enhancement of agricultural research.8


24. Since the early 1980s, when the strategy of export-oriented manufacturing was introduced and subsequently pursued with a high degree of commitment and consistency, Mauritius has enjoyed remarkable success in expanding its manufacturing industry and export base. During 1993–95, the manufacturing sector accounted for approximately 23 percent of GDP, about half of which was attributable to the EPZ sector (Appendix II, Table II). Indeed, the nonsugar sector’s share of manufacturing continued to increase from slightly less than 89 percent in 1989 to almost 93 percent in 1994 (Appendix II, Table XVI). Moreover, as total merchandise exports rose by some 78 percent from Mau Rs 15.1 billion in 1989 to almost Mau Rs 26.8 billion in 1995, nonsugar exports as a percentage thereof expanded during the same period from 67 percent to 76 percent, thus providing further evidence of the country’s successful diversification strategy (Appendix II, Table XLIV).

25. The EPZ sector, which continues to be dominated by textiles and wearing apparel, represents a steadily growing share of merchandise exports, reaching more than 68 percent during 1993–95, up from some 60 percent in 1989 (Appendix II, Table XLIV). Indeed, over the last 15 years, EPZ exports grew more than sixfold in foreign currency terms to reach almost SDR 700 million in 1995 (Chart 4; and Appendix II, Table XVII). More than 90 percent of the EPZ sector’s exports are destined to the EU and the United States (Appendix II, Table XLVI). However, the sector’s export growth has slowed down over the past few years, reflecting a possible loss of competitiveness as compared with other textile exporters in Asia, Eastern Europe, and Latin America.9 The main reason for the erosion of international competitiveness has been a succession of wage increases, particularly since the early 1990s, which have been out of line with labor productivity, thus driving up unit labor costs by more than 50 percent between 1990 and 1995 (Chart 5 and Table 8,). The conclusion of the Uruguay Round negotiations and the accompanying agreement to phase out the Multi-Fibre Agreement over the ten-year period 1995–2005 will add to the challenges facing the EPZ sector, as the Mauritius’s trading partners liberalize their textiles and clothing markets, thus eroding the country’s preferential access to these markets.10



Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Source: Central Statistical Office, Digest of Industrial Statistics.


Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Source: Central Statistical Office.1/ Series revised from 1990.2/ In manufacturing, excluding sugar milling and small establishments (fewer than 10 employees)

26. Faced with these realities, the EPZ sector has embarked on a process of consolidation, investing heavily in plant and machinery and gradually reducing its work force with a view to increasing productivity and moving to higher value-added products. Thus, between 1991 and 1995, the number of EPZ firms declined by almost 18 percent, from 586 units to 481, and the number of employees by more than 11 percent, from about 91,000 to nearly 80,500. These contractions have been accompanied by an increase in investment for plant and machinery (as well as management techniques), from an average of nearly Mau Rs 600 million (or 1.3 percent of GDP) during 1991 and 1992 to an average of Mau Rs 900 during 1993 and 1994 (or 1.5 percent of GDP). However, in 1995, investments in the EPZ sector declined by about 10 percent in nominal terms to Mau Rs 815 million (or 1.2 percent of GDP). While growth of value added in the EPZ sector declined from 6.0 percent during 1992 and 1993 to an average of about 4.7 percent during 1994 and 1995, there are indications that this trend may have been reversed, with higher growth expected in 1996 (Appendix II, Table XVII). Nevertheless, both investment and growth continue to be constrained by the lack of an adequately qualified labor force with the necessary skills to operate an increasingly sophisticated technology. Mindful of the risks of too high a dependency on textiles, the authorities are also pursuing a number of initiatives to encourage diversification of the EPZ sector into other industries. Thus, the Mauritius Export Development and Investment Authority is promoting investments in nontextile industries, including plastics, leather, jewelry, computer software, electronics, and pharmaceuticals. Between 1991 and 1995, employment in the nontextile EPZ companies has increased by about 10 percent, from slightly less than 9,400 to about 10,300 persons. During the same period, exports of this subsector grew by almost 71 percent from about Mau Rs 2.0 billion to almost Mau Rs 3.5 billion, while those of the textiles sector grew at a slower pace: a cumulative 46 percent, from about Mau Rs 10.1 billion to about Mau Rs 14.8 billion (Appendix II, Table XVII).


27. Electricity is distributed and largely produced by the Central Electricity Board (CEB), which is a parastatal body. The two main sources of power generation are thermal plants, which in 1995 accounted for about 87 percent of production, and hydroelectric plants, which produced the balance of nearly 13 percent. As discussed above, Mauritius relies to a sizable degree on the sugar sector for the supply of thermally generated electricity using bagasse, which is fed into the CEB’s national grid. Owing to the country’s previous dependence on imported fuel and coal to generate electricity, the development and expansion of bagasse-based plants will be of strategic importance, if the country is to improve the efficiency of its energy sector. The CEB’s tariff rates have not been significantly increased since 1993. Indeed, with the exception of 1993, the CEB has continuously posted losses since 1988. Because electricity tariffs are already higher than those of a number of Mauritius’s competitor countries, the CEB needs to improve its financial situation by way of cost reduction rather than tariff increases. To this end, the CEB has started to strengthen its management and reduce operational costs, as evidenced by a gradual reduction of the labor force of about 5 percent, from 2,016 employees to 1,917 between 1993 and 1995 (Appendix II, Table XVIII).


28. Beginning in 1993/94, tourism emerged as the second most important source of foreign currency, behind the EPZ sector, but ahead of the sugar sector. In 1995/96, it maintained its position, and gross earnings are estimated to have risen to nearly Mau Rs 8.1 billion, compared with about Mau Rs 19.6 billion for the EPZ sector and only Mau Rs 6.5 billion for the sugar sector (Appendix II, Table XLIII). After a disappointing year in 1991 on account of the events in the Persian Gulf, tourist arrivals in 1992 increased by more than 11 percent, to 335,400. By 1995, tourist arrivals had risen by another 26 percent, to about 422,500 (Appendix II, Table XIX). Preliminary estimates for 1996 suggest that tourist arrivals could grow by a further 11 percent to a record level of about 470,000.

29. While the average stay per tourist has fallen from about 12.3 nights in the early 1990s to about 10.5 nights in 1995, the average earnings per tourist has nonetheless risen from SDR 620 during 1990–92 to SDR 671 in 1995. As a result, gross earnings increased between 1992 and 1995 by more than 60 percent in rupee terms (Mau Rs 4.7 billion to Mau Rs 7.5 billion), or by about 33.4 percent in foreign currency terms (SDR 212.4 million to SDR 283.3 million), which is a much higher rate than that of the tourist arrivals (Appendix II, Table XX). For 1996, preliminary indications are that gross earnings could exceed Mau Rs 9.2 billion. The higher earnings per tourist are further evidence of the success of the authorities’ policies of targeting the higher end of the tourist market, combined with a deepening and sophistication of the travel industry to encourage increased out-of-pocket expenses in such activities as water sports, deep-sea fishing, shopping (including duty-free purchases), and car rentals. The expansion and deepening of the tourism industry has also led to an increase in employment in this sector (Appendix II, Table XXII). Thus, between March 1991 and March 1996, direct employment in tourist establishments (employing 10 persons or more) rose by nearly 43 percent, from 10,100 employees to about 14,400. Of these, about 9,700 were engaged in hotels, as compared with 6,400 in 1991.

30. The largest market for the tourist sector continues to be Europe, which maintained a share of about 54 percent during 1994 and 1995. In the Indian Ocean/Southern Africa region, the neighboring French island of Réunion and South Africa also feature prominently among tourists visiting Mauritius with an average share of about 19 percent and 10 percent during 1994 and 1995, respectively. Other small but growing markets include India, Australia, and Seychelles (Appendix II, Table XIX).

31. As of end-1995, there were about 95 hotels with a total capacity of some 6,000 rooms in Mauritius. The room occupancy rates during the first half of 1996 averaged about 65 percent for all hotels and 71 percent for the large ones. These occupancy rates have remained rather stable since 1994. However, there are growing indications that during the peak tourist season of October to January both flight capacity into the country and hotel room capacity in Mauritius, particularly in the upper end of the market, are stretched to their limits.

32. Supported by a buoyant tourist market, Air Mauritius continues to expand its capacity and destination network. Air Mauritius’s passenger load grew from 552,000 passengers during its financial year 1991/92 (April/March) to 681,000 in 1995/96. For the year ended March 31, 1996, the Air Mauritius Group (which includes interests in airport catering, shopping, real estate, and a hotel) earned profits of about Mau Rs 568 million (before taxes), compared with about Mau Rs 499 million in the previous year. The airline operates two Boeing 767s, three Airbus A340s, two ATR 42s, and two helicopters to destinations in Europe, Southern Africa, Asia, Australia, and neighboring Indian Ocean islands. Over the next three years it has on firm order three more Airbus A340s as well as two ATR 42 airplanes. New destinations (including Manchester and Jakarta) have been added to the regular schedule in 1996, and Air Mauritius plans to expand and intensify its service during 1997 and 1998 to additional destinations, including Athens, Amsterdam, Madrid, and Maputo, as well as a number of cities in South Africa.

Offshore services

33. In an attempt to further diversify the Mauritian economy and establish the so-called fourth pillar, offshore services enabling legislation was passed in 1992, including the Freeport Act and the Mauritius Offshore Business Activities Act.11


34. The Mauritius Freeport is supervised by the Mauritius Freeport Authority (MFA) and provides for pure trading and transshipment operations as well as minor processing, simple assembly, and repackaging. An example of minor processing would be the quality control inside the freeport of wood imported from Madagascar for reexport to Europe. In this example, European importers take advantage of the political stability in Mauritius, as well as its well-developed travel services, including frequent airline connections to Europe and high quality of hotels, to conduct the quality control in Mauritius rather than in Madagascar. An example for simple assembly involves the importation of aluminum bars with the appropriate profiles for doors and windows, cutting and assembling them to order in Mauritius, and reexporting the assembled doors and windows to the neighboring French island of Reunion where labor costs are much higher than in Mauritius.

35. Total trade passing through the freeport, that is, imports plus exports, has increased dramatically over the past three years, from Mau Rs 100 million in 1993/94 to Mau Rs 715 million in 1994/95, and about Mau Rs 1.2 billion in 1995/96. Nevertheless, the value added by trading companies operating in the freeport is estimated to be only about 10 percent of the value of imports. Thus, the freeport’s direct contribution to GDP was estimated at about Mau Rs 50–55 million in 1995/96, or less than 0.1 percent of GDP. However, some other indirect benefits to the economy can be expected, including additional travel-related activities as well as efficiency gains in the country’s sea and airports resulting from economies of scale.

36. The freeport is presently undergoing major expansion, which is developing around the construction by the Mauritian Marine Authority of a high-capacity container terminal in Port Louis. The latter is financed in part by the World Bank and is scheduled to be completed by end-1998 at an estimated cost of Mau Rs 1.5 billion. The MFA is building, adjacent to the container terminal, additional warehouses and administrative buildings for lease to freeport companies by the MFA, thereby more than doubling the existing capacity. In addition, even larger storage and warehouse facilities will be constructed by two consortia on 60-year leases under so-called Build, Operate and Transfer (BOT) arrangements with the MFA.12 Under these BOT arrangements, the MFA will provide only basic infrastructure, including fencing, road access, and public utilities, for the lease of two large plots of reclaimed land.13 On their part, the private sector counterparts will build and operate on their own account the warehouse facilities, which will revert to MFA’s ownership at the end of the 60-year lease.

37. Finally, the authorities are studying the feasibility of combined sea-air freeport activities in Mauritius, particularly as regards airborne reexport operations to landlocked southern African countries such as Malawi, Zimbabwe, and Zambia. A study commissioned by the MFA and jointly financed with a loan from the World Bank recently concluded that, while a potential market for sea-air operations in the Indian Ocean and southern African region existed, limited air cargo services provided by Air Mauritius were a constraining factor.

Offshore business

38. The offshore business in Mauritius consists of offshore banking, which comes under the supervision of the Bank of Mauritius, and nonbanking activities, which are licensed and supervised by the Mauritius Offshore Business Activities Authority (MOBAA).14 MOBAA was established in 1992 as a one-stop shop for foreign investors and as an advisory agency for the government on offshore business matters. The Chairman of the Board of MOBAA is the Minister of Finance, while the Vice-Chairman is the Governor of the Bank of Mauritius. MOBAA’s day-to-day operations are managed by its Director, who has a support staff of about 25 people, including lawyers, accountants, and economists.

39. As of end-November 1996, in addition to 7 offshore banks, about 4,300 offshore nonbank companies were registered in Mauritius. Of these, about 40 percent were so-called international companies,15 while another 37 percent were active in the field of investment holding and fund management. In spite of the large number of registered companies, the offshore business sector employs only about 500 persons, albeit in high-paying jobs such as in the legal and accounting fields, and its contribution to GDP is still very small.

40. The offshore business sector has profited greatly from a double taxation avoidance treaty between Mauritius and India, which was ratified in 1985, that is, seven years before the sector’s official establishment. Under the provision of the treaty, investors, particularly Indian expatriates, interested in investing in the increasingly liberalized Indian economy, could set up an investment holding company in Mauritius, and be subject to withholding tax on dividend income in India of only 5 percent instead of 15 percent. As of August 1996, Mauritius had double taxation avoidance treaties with 15 countries, including Botswana, Luxembourg, and Singapore, which ratified their treaties in 1996.

41. Starting July 1, 1998, all new companies that will be registered in the offshore business sector will be subject to a uniform 15 percent tax. However, all companies registered prior to that date will be entitled to maintain their previously granted tax incentives arrangements indefinitely.

III. Employment, Wages, and Prices

A. Employment

42. The Mauritian labor market has evolved over the past 15 years from a situation of high unemployment to one of acute scarcity in particular sectors and skills (Chart 5). During 1991–94, employment grew at a steady pace of about 2.5–3.0 percent, with the growth in female employment averaging about 3.9 percent, consistently higher than that of male employment (2.1 percent). However, growth in employment fell to 2 percent in 1995, largely on account of a drop in the growth rate of female employment (Appendix II, Table XXI). These developments have been accompanied by a steady increase in female participation in the labor force, from an average of 37.5 percent during 1990 and 1991 to 40.5 percent during 1994 and 1995, while that of the male workforce remained largely unchanged over the same period, at about 76 percent.

43. The increase in employment from about 810,000 people in 1990 to nearly 880,000 in 1995 was almost entirely attributable to the expansion of work opportunities in small enterprises, where employment grew from 161,000 to 223,000, whereas in larger firms it remained almost unchanged, at about 285,000 (Appendix II, Table XXI).

44. The breakdown of employment, which is available only for firms with at least 10 employees (Table 5; and Appendix II, Table XXII), reveals that since the early 1990s, there have been marked structural shifts in employment patterns away from the primary and secondary sectors toward the tertiary sector. Thus, between March 1992 and March 1996, employment has contracted in the agricultural, manufacturing, and construction sectors, while it has expanded in all the services sectors, including whole and retail trade, restaurants and hotels, transport and communication, government services, and other community, social and personal services (Appendix II, Table XXII).

45. However, employment statistics also mask significant structural rigidities in the labor market. Outdated laws governing the sugar sector impede the shedding of labor. As a result, firms in this sector cannot take appropriate advantage of new technologies and economies of scale. It is estimated that over the next five years, 5 of the 17 plants presently operating in milling operations alone would need to be shut down and their operations consolidated in the other factories, thereby reducing the workforce by about 1,000 people. The lower level of government administration is also considered to be seriously overstaffed. On the other hand, there is an acute shortage of skilled workers in the textile sector, particularly for luxury apparel. As a result, EPZ companies are increasingly engaged in poaching qualified workers from one another. Moreover, a growing number of companies are requesting the authorities to approve the import of highly skilled labor from Asia, in particular from China, where textile workers undergo vocational training of three years, thereby acquiring a broad foundation of specialized skills.

B. Wages

46. Following a period of high wage awards in the early 1990s, average wage increases moderated to 8.3 percent during 1994/95–1995/96 from 12.9 percent during 1990/91–1993/94 (Table 6). Nevertheless, average wage awards remained higher than the rate of inflation, which, in the absence of corresponding gains in productivity, led to a continued rise in unit labor costs averaging about 5.5 percent between 1993 and 1995 (Tables 7 and 8; Chart 5).

47. The present wage determination system16 has resulted in a severe compression of the wage structure in the civil service, where lower level wages have consistently been increased at a higher rate than those for senior civil servants. Other serious consequences resulting from the tripartite wage determination process are the indexation of wages to past inflation, thereby increasing the inertia in inflation; and the disconnect between wage awards and productivity, which has resulted in higher unit labor costs. The latter has weakened the international competitiveness of the manufacturing sector, particularly the EPZ sector, which continues to rely on low-paying jobs (Table 6; Chart 5; and Appendix II, Table XXIII).

C. Prices

48. After rising to an average of 9.2 percent during 1992/93–1993/94, CPI inflation dropped to 6.1 percent in 1994/95 and 5.8 percent in 1995/96 (Table 9). However, the end-of-period inflation rates for June through September 1996, averaging about 7.8 percent, suggest that inflationary pressures are on the rise again. The strongest surge has occurred in the categories of alcoholic beverages and tobacco; medical care and health services; and miscellaneous goods and services (Chart 6; and Appendix II, Table XXV). The price increases in these sectors are partly attributable to measures announced in the 1996/97 budget, including a 3 percentage point increase in the sales tax. In this context, the recently announced wage awards by the CSAT are likely to exert further upward pressure on inflation.



(Annual percentage change)

Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Source: Central Statistical Office.

49. These developments in inflation may be understated, however, as the basket of the CPI consists of a number of commodities, which are subject to some form of price controls and which represent an estimated 30 percent of the basket (see Box 1). Thus, during 1994/951995/96, the index of controlled commodities’ prices rose by an average of 4.3 percent, compared with 7.4 percent for noncontrolled products (on an end-of-period basis). Several indications show that controlled commodities prices have not risen in line with their underlying costs over this period. In this context, as a result of higher international spot prices for crude and refined oil products, the domestic prices for petroleum products were increased in December 1996 by an average of 25 percent. This was the second price adjustment for petroleum products in 1996, after prices were raised by 11–19 percent in June 1996 (Appendix II, Tables XXVI and XXVII).

IV. Public Finance

A. Institutional Structure

50. The central government budgetary accounts in Mauritius cover the operations of government ministries, the legislature, the judiciary, and other central offices and commissions. They also include the receipts and expenditures of a few public utilities administered as government departments. However, they only partially reflect the operations of a variety of semiautonomous agencies, mainly through transfers that supplement any separate income sources. Local government consists of five largely independent municipalities, each drawing on its own revenues as well as transfers from the central government, and four district councils grouping about a hundred village councils; there are no provincial governments. There are also some 50 public enterprises, of which 12 are classified as financial and the rest as nonfinancial (Table 10).

51. The main instrument of fiscal policy in Mauritius is the central government budget, which is submitted to Parliament in May/June for the coming fiscal year (July/June). The central government revenue projections and spending authorizations for each fiscal year are contained in recurrent budget “Estimates” and a separate “Capital Budget.” The former includes most revenues, internal loan reimbursements, most current expenditure, and all debt service; the latter includes dividend receipts, grant and loan proceeds, project expenditure (including some of a recurrent nature),17 and lending (including the on-lending of certain external borrowings). Final accounts are published annually in a “Financial Report.” The data presented below have been adjusted to conform with the GFS18 format in the Ministry of Finance on the basis of Central Statistical Office guidelines for “budgetary” central government. They reflect only a limited rearrangement of revenues but also a considerable adjustment of expenditure and debt service, including reclassifications into financing and net lending, as well as the treatment of all enterprise operations on a net basis. However, the data published on Mauritius in the Government Finance Statistics Yearbook are on a “consolidated” central government basis, which incorporates the full revenues and expenditures of autonomous agencies. Given the diversity of sources, however, the compilation of such data in a timely and reliable manner for policy discussion purposes is not practicable, especially for the year in progress and budget projections.

Mauritius - Price Controls on Commodities

The Ministry of Trade and Shipping exercises price controls on a number of commodities that the authorities deem to be essential to the population. The authorities justify price controls based on the fact that Mauritius is a very small country where, in the absence of fair competition, a few unscrupulous traders can create cartels and dictate prices to the detriment of the Mauritian consumer. The ministry also claims that the price controls it imposes on firms allow for a fair return on capital, enabling them to maintain the level of their fixed assets and make reasonable payments of dividends.

The ministry distinguishes between locally produced and imported commodities subject to price controls, on the one hand, and those that are subject to maximum mark-up regulations, on the other, as follows:

Commodities under price controls

  • Locally manufactured goods: onions, potatoes, sugar, glass bottled carbonated beverages, bread, coconut oil, edible oil, fertilizers, frozen fish, iron and steel bars, and flour.

  • Imported goods: cement, cheese, cooking, gas, coconut oil, fertilizers, flour, frozen fish, infant milk powder, iron and steel bars, petroleum products, rice, and salted snook.

Commodities subject to maximum mark-up regulations

  • School textbooks, tires and tubes, pharmaceutical products, simple drugs, magazines, helmets, sport articles, ceramic tiles, sanitary wares, vinyl, plywood, glass panes, timber, domestic washing machines, electrical flour polishers, electric irons, electric juicers, electric grinders, electric kettles, electric mixers, refrigerators and freezers, rice cookers, vacuum cleaners, and imported fresh fruit.

B. Central Government Budgetary Developments

52. In the context of Fund-supported adjustment programs through 1986, the Mauritian authorities achieved a major and uninterrupted reduction of the overall budget deficit during the 1980s (Charts 7 and 8; and Table 11). From a peak of 14 percent in 1980/81, the overall deficit was reduced in proportion to GDP to under 2 percent in 1990/91, and remained at an average of 2.3 percent over 1991/92–1993/94. This reduction in the fiscal deficit reflected mainly a curtailment of expenditure and net lending; total outlays, which had reached as high as 36 percent of GDP at the start of the 1980s, were reduced to around 24 percent in 1992/93–1993/94. Revenues increased only marginally relative to GDP during the 1980s as the effect of increasingly buoyant economic conditions and strengthened tax administration were partially offset by significant tax concessions to both enterprises and individuals. In the early 1990s, however, tax revenues began to decrease substantially from a peak of 21.7 percent of GDP in 1990/91 to 19.2 percent in 1993/94.



(In percent of GDP)

Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Sources: Ministry of Finance; and Central Statistical Office


(In percent of GDP)

Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Source: Ministry of Finance; and Bank of Mauritius.

53. In 1994/95, the fiscal situation deteriorated markedly, as tax revenue fell sharply and expenditure was not lowered accordingly, and the overall fiscal deficit increased to 3.7 percent of GDP. The poor tax performance stemmed from sharply decreasing taxes on international trade, as import duties were reduced and rationalized, and the last remaining export tax on sugar was abolished. In 1995/96, total revenue continued to decline, as import taxes remained weak, and nontax revenue was significantly lower than in previous years. Total expenditure and net lending increased, on the other hand, as rice and flour subsidies were reintroduced, and about half of the proceeds from an international Floating Rate Note (FRN) issue was on-lent to the National Investment Development Fund (NIDF) for infrastructure projects and housing financing. As a result, the overall deficit widened sharply to the equivalent of 7.6 percent of GDP. In spite of an increase in the sales tax rate from 5 to 8 percent, the 1996/97 budget projects a deficit of around 6 percent of GDP, including the on-lending of the remaining proceeds of the FRN. Current expenditure is projected to increase by 0.7 percentage point of GDP, reflecting the effect of a public sector salary award based on the decision of the Civil Service Arbitration Tribunal, and the increase of basic pensions by 56 percent. These developments are detailed in the following sections.


54. The Mauritian revenue structure is still dominated by taxes on international trade, with levies on imports accounting for about two fifths of total revenues (Table 12; and Appendix II, Table XXVIII).19 In recent years, however, import taxes have fallen and the export tax on sugar was abolished to enable the industry to modernize. Taxes on domestic goods and services account for slightly more than one fourth of total revenue, mainly in the form of selective excises and a sales tax. Income and profit taxes provide about an eighth of total revenue, and property taxes, only half that amount. Nontax revenues, consisting mainly of dividends and other property income, fluctuate significantly from year to year. In recent years, they accounted for about a tenth of the total on average. External grants continue to be insignificant as a source of revenue.

55. Revenue performance in the 1990s has weakened markedly, after having grown strongly in the second half of the 1980s. Tax revenues, in particular, have lagged behind the overall growth of the economy in each year since 1990/91, reflecting particularly the lowering of taxes on international trade during the last years.

56. Income taxes have improved slightly, with revenues as a proportion of GDP increasing from 2.5 percent in 1993/94 to 2.7 percent in 1995/96. This slight improvement was due to higher individual tax receipts, as bringing income taxes onto a current payment basis with the introduction of the Pay-As-You-Earn/Current Payment System (PAYE/CPS) system in July 1, 1993, finally brought about the expected result. Corporate tax receipts remained constant as a proportion of GDP over this period. However, the bases of both taxes are substantially eroded by a wide range of exemptions and deductions. In particular, numerous categories of income are exempt from individual tax, including the first Mau Rs 100,000 of interest on deposit or savings accounts, and the emoluments deduction (equivalent to 12 percent of income from employment) is quite generous. The treatment of interest payments also gives rise to large deductions, including an unlimited deduction for interest incurred on mortgage loans. Similarly, various incentive schemes and deductions, which were designed to encourage investment, reduce the corporate tax base substantially. With the 1996/97 budget, some of the deductions from the income tax were restricted, with a cap on the deduction for interest on mortgage loans, as well as on the emoluments deduction and the aggregate deduction for contributions to various saving schemes.

57. Taxes on domestic goods and services, on the other hand, have grown slightly less rapidly than nominal GDP since 1993/94. Slightly less than a third of these revenues are generated by excises on alcohol and tobacco. While the tax on cigarettes is ad valorem, some alcoholic beverages are still taxed at specific rates; as a result, revenues from excises grew by slightly less than nominal GDP over the two-year period. Rates applied to domestically produced goods are generally lower than on imported goods. Slightly over one-third of taxes on domestic goods are generated by the 5 percent sales tax, which entails significant exemptions. The remaining receipts are from taxes on gambling, tourism (i.e., hotels and restaurants), and motor vehicles. In June 1996, the rate of the sales tax was increased from 5 to 8 percent, and its base was broadened somewhat, with the aim to make the sales tax play a more important role in generating revenue.

58. Taxes on international trade declined from 49 percent of total revenue in 1990/91 to 38 percent in 1995/96; nevertheless, they remain the largest source of government revenue. The only remaining component of such revenues is taxes on imports, since export taxes on sugar were abolished in 1994. Mauritius’s import duty system was reformed in July 1994. The prevailing three import taxes were consolidated into one customs duty and 90 prevailing duty rates were reduced to 10 rates. The average duty rate declined, and as a result, revenue from import duties decreased by the equivalent of 1.5 percentage point of GDP between 1993/94 and 1994/95. This reform did not aim at broadening the narrow import tax base, with the result that almost half of imports still enjoyed a zero rate in 1994/95. Also, the structure of the rates remained without any relation to the degree of processing, and a top rate of 100 percent, together with many exempted inputs, still allowed some industries to enjoy high effective rates of protection. In 1995/96, import duties further decreased as a proportion of GDP, as new exemptions were granted, and the structure of imports shifted toward products with lower tariff rates.

59. After declining somewhat in the late 1980s, since 1990/91 nontax revenues have accounted on average for about 10 percent of total government receipts. Transfers of profits from the Bank of Mauritius represented more than half of nontax revenue in 1994/95. Apart from those, a major component of nontax revenue is dividend payments from the State Trading Corporation (STC) on its petroleum account. While imports of petroleum products (Mauritius has no refinery) are subject to import duties, they are sold at controlled prices and the residual surplus over and above the cost of imports, import duties, and distribution costs is captured by the STC’s petroleum account and paid as dividends to the government. In 1995/96, a transfer of profits from the Bank of Mauritius amounting to Mau Rs 700 million was postponed up to July 1996, that is, fiscal year 1996/97. As a result, nontax revenue was substantially lower than in the previous year, at the equivalent of 1.6 percent of GDP. In 1996/97, given the recent rise in international petroleum product prices, the STC is not expected to be in a position to transfer any dividend from its petroleum account, notwithstanding the increase in domestic retail prices by an average of 25 percent in December 1996.

Expenditure and net lending

60. Since 1990/91 government expenditures have fluctuated around 25 percent of GDP (Chart 7; and Table 13). Expenditures on wages and salaries, while slightly less than a third of total expenditures, are one of the two largest expenditure accounts in the budget. After an increase of 31 percent in the civil service wage bill in 1993/94 (including a 2-percentage point grade creep), following the recommendations of the Pay Research Bureau (PRB), these expenditures declined in the two following years, reflecting both strict controls on recruitment and keeping vacancies unfilled, as well as the effect of tapering in the tripartite award on the relatively highly paid public sector. However, following a request by trade unions to correct some wage anomalies in the civil service, the Civil Service Arbitration Tribunal (CSAT) granted a wage award to civil servants, amounting to a total of slightly more than Mau Rs 1 billion, which will be paid in two installments in 1996/97 and 1997/98.

61. Subsidies and other current transfers represent the other largest element on the expenditure side, accounting for nearly one-third of total outlays since 1993/94. Slightly less than half of these expenditures consist of transfers to local government, payments in support of education, and public service pensions (Appendix II, Table XXIX). All of these reflect indirectly the effect of public sector wages. One-fourth of these outlays represents the government grant to the National Pensions Fund (NPF) to cover the cost of the noncontributory basic pension paid to all Mauritian citizens aged 60 or over and other social assistance schemes (see Appendix III, Social Policies, and Appendix II, Table XXX). This basic pension has been increased by 56 percent during the second quarter of 1996, and, as a result, the government grant to the NPF is projected to account for one-third of total subsidies and other current transfers in 1996/97.

62. Another substantial subsidy item in the budget has been that for “ration” rice and flour20 imported and sold at fixed prices by the State Trading Corporation (Appendix II, Table XXXI). This subsidy, which amounted to Mau Rs 220 million in each of the fiscal years 1991/92 and 1992/93, was eliminated in May 1993 when the retail prices of “ration” rice and flour were increased substantially, although they are still subject to government control. However, it was reintroduced in July 1995, amounting to Mau Rs 197 million, in order to avoid a further price increase following the rise in international market prices. With the depreciation of the rupee during 1995/96, however, this subsidy was not sufficient to cover the costs of the STC for its operation on “ration” rice and flour. As a result, rather than increasing the price of rice and flour, the government decided in December 1996 to increase the amount of the subsidy to Mau Rs 515 million for 1996/97.

63. Interest payments on the external debt have increased slightly in 1994/95 in Mauritian rupee terms, reflecting the continued depreciation of the rupee against most foreign currencies. Interest payments on domestic government debt sharply rose between 1993/94 and 1995/96 by almost 50 percent, as government securities were issued to finance the widening budget deficits, and interest rates on government securities were driven up by the public sector’s growing financing need.

64. Expenditures on other goods and services, after having increased less rapidly than nominal GDP between 1991/92 and 1993/94, accelerated again as a proportion of GDP mainly as a result of progressive computerization of the civil service and the rising maintenance costs.

65. Capital outlays, which bore much of the initial burden of budget tightening in the early 1980s, have grown slightly faster than nominal GDP since 1990/91, reflecting the increasing need to develop Mauritius’s infrastructure to support both recent and future growth of the economy. Major undertakings in recent years have included extensive construction and renovation of roads and bridges, improvements to water supplies and irrigation, housing and urban development, expansion of telecommunications, and spending on environmental projects in the framework of the Environment Investment Program (EIP). In addition, in 1995/96, about half of the proceeds from the international Floating Rate Note issued in October project were on-lent to the NIDF, which in turn on-lent these proceeds to the Mauritius Housing Company, for housing projects, Mauritius Telecom and the Development Bank of Mauritius, to finance infrastructure projects.

66. The functional classification of expenditures shows that spending on social services, education, health, pensions, and housing accounts for just under half of the total outlays compared with two-fifths in 1990/91 (Table 14; and Appendix II, Table XXXII). While another fifth of total outlays are spent on public administration and security, defense expenditure in Mauritius accounts for less than 1.5 percent of total outlays, equivalent to 0.3 percent of GDP. About one-seventh of total outlays are on economic services, in particular agriculture, transport, and communications, with the remainder on other purposes, including debt service and transfers to local government.


67. Since the 1980s there have been marked shifts among sources of financing for the budget deficit (Chart 8; and Appendix II, Table XXXIII). Between 1988/89 and 1994/95, external amortization payments (including prepayments of the most costly loans) have exceeded new external borrowing, and the need for domestic financing has thus exceeded the budgetary deficit. While nonbank domestic borrowing was a significant source of funds through 1989/90, the nonbank sector provided virtually no new net resources in total between 1990/91 and 1994/95; there was even a decline of nonbank holdings of government debt in 1993/94. As a result, banks were the sole source of financing, reaching more than 4 percent of GDP in 1993/94 and 1994/95. In 1995/96, however, given the growing budget deficit, and the desire to limit the financing from banks, the government sought exceptional sources of financing. First, it issued in October 1995 an international Floating Rate Note of US$150 million. This amount will have to be repaid after five years, while interest will be paid quarterly at the London Interbank Offered Rate (LIBOR), plus a 0.9 percentage point. The proceeds in Mauritian rupees of the FRN are being on-lent to a few parastatal bodies at an interest rate of about 12 percent. Second, the government issued in April 1996 two domestic bonds, the Republic and Independence bonds, with a maturity of 5 and 9 years, respectively, at adjustable interest rates, for a total amount of Mau Rs 2.4 billion (Mau Rs 2.1 billion and Mau Rs 0.3 billion, respectively). As a result, financing from banks was limited to less than 2 percent of GDP.

68. As shown by the available stock data (Appendix II, Table XXXIV), the principal domestic nonbank investors in government paper have been the NPF, the Postal Savings Bank, the State Insurance Corporation (SIC), and, more recently, other insurance companies.

69. External loan disbursements over the last two years, apart from the Floating Rate Note issue, were somewhat lower than the Mau Rs 550–500 million borrowed in 1992/93 and 1993/94 (Appendix II, Table XXXV). Loans have been concentrated on the financing of capital projects; there have been no new program or balance of payments support loans. The World Bank has been the predominant multilateral lender, followed by the European Development Fund, and the African Development Bank. France has been the largest bilateral creditor, followed by the Kuwait Fund.

C. Public Enterprises

70. Public enterprises in Mauritius include a number of utilities operated as government departments, true “parastatals” established under separate laws and subject to ministerial direction and public service regulations, and majority or wholly state-owned enterprises operating under the same company law as do private firms. Some of these public enterprises are dependent on current operating subsidies, as well as capital subventions and loans; a few others provide considerable dividend income to the budget. Recent policy has been to transform, where possible, public enterprises in sectors that can be managed under purely commercial criteria to company law status, in order to improve efficiency and commercial viability and with a view to eventual listing on the stock exchange and/or full privatization. To this end, the government is preparing a White Paper on Privatization with the assistance of the Commonwealth Secretariat. Comprehensive and reliable financial data for the nonfinancial public sector as a whole are not yet available, since the timeliness and quality of accounts vary widely among enterprises.

71. The following sections provide some information on the more important non financial public enterprises, in order of the list shown in Table 10, focusing on their financial performance, their need for budgetary support, and their current legal status:

  • Development Works Corporation (DWC). Generally recognized as the financially weakest of the larger public enterprises, the DWC continues to need and receive substantial support from the government budget, including the payment of its wage bill. Although efforts have been made in recent years to improve efficiency in this overstaffed parastatal, largely by putting most of its work on a contract basis, its statutory wage structure and fringe benefits keep it uncompetitive with private contractors. It is therefore confined largely to public works. A recent report on the DWC recommended a phased reduction in the DWC work force, but the government has been unable to carry through this proposal for political reasons. In Mauritius’s past situation of surplus labor, DWC was a major employer of last resort, so that many of its employees are now aging and are expected to be difficult to place with other potential employers. For 1996/97, a transfer from the budget of Mau Rs 91 million was envisaged. However, the DWC has been facing acute liquidity problems. Thus, the government has recently approved a new disbursement program and has requested the Management Audit Bureau to review the DWC with a view to making it more efficient.

  • Tea Industry (Tea Board, Belle Rive Tea Factory, La Pipe Tea Factory, Mauritius Tea Factories, Nouvelle France Tea Estate). The government is pursuing a diversification program, whereby state land formerly under tea cultivation is now being used for sugarcane plantation and growing vegetables. Incentives are being given to private owners as well to replace tea bushes by sugarcane or vegetables. The government is undertaking all the uprooting and land conversion activities including construction of roads. Around 60 percent of land has been replanted with sugarcane and will be ready for harvest at the next 1997 season.

  • The Agricultural Marketing Board (AMB) is responsible for marketing and subsidizing locally produced food crops and milk; it also operates a cool storage facility. Most of the food crops subsidy is spent on potatoes. The AMB guarantees a fixed price, above market in the case of subsidized products, to local producers. The AMB is also the government’s instrument for ad hoc imports of foodstuffs to deal with spot shortages, such as vegetables after cyclone passages.

  • Port services (Cargo Handling Corporation, Mauritius Marine Authority). The Cargo Handling Corporation is the monopoly Mauritian stevedoring enterprise. It is now run as a private company but remains wholly publicly owned. Although it is profitable, it is a major contributor to high port costs in Mauritius. Mauritius’s island status and critical dependence on imported foodstuffs made it difficult in the past to control wage costs and eliminate featherbedding work practices. The Marine Authority runs the port and is also profitable. In the context of its wider study of the seaport and the problem of high shipping costs, the World Bank is studying the possible privatization of the Marine Authority. The question of port costs will be a major factor in the success of the Freeport expansion project.

  • Central Electricity Board (CEB). The financial position of the CEB remains weak in spite of significant debt forgiveness by the government, which converted its loans into share capital in the CEB. The World Bank, which has recommended the formal incorporation of the already essentially autonomously managed CEB, has completed a major review of the enterprise. The CEB is studying its recommendations.

  • Central Water Authority (CWA). The financial position of the CWA has reflected political pressure to keep the cost of water low, especially for agriculture, which enjoys preferential tariffs. The CWA has balanced its operating accounts, but it has encountered difficulty in meeting the debt-servicing costs of the massive investment needed to meet the rapidly rising demand for water from the household, tourism, and industrial sectors as well as agriculture. The government has written off Mau Rs 800 million in government loans; the CWA continues to service foreign loans. Present plans are to restructure the CWA along the following lines: (i) capital works, such as dams, are being taken over by a Water Resources Unit (WRU) in the Ministry of Energy, and new investment will be included in the investment budget and financed as public infrastructure; (ii) the CWA will become a distribution company, buying the water from WRU, maintaining the distribution system, and selling the water to the final consumer; and (iii) its agricultural irrigation business will be assumed by the Irrigation Authority under the Ministry of Agriculture.

  • Civil Aviation Department (CAD) has been divided into three units: (i) the civil aviation regulatory functions (air traffic control, etc.) will remain in the CAD; (ii) a property company will take over the CAD’s physical assets, such as airports; and (iii) a management company has been set up to manage the airports. These two latter companies have the legal structure of private companies. However, the government is considering the possibility of merging these two companies.

  • Mauritius Export Development and Investment Authority (MEDIA) has two main functions. First, it organizes trade missions and investment promotion missions abroad, promotes the participation of Mauritian exporters in trade fairs (for which some minor fees are charged), and operates some representative offices abroad—this function is financed directly from the government budget, with Mau Rs 60 million allocated in 1996/97. Second, MEDIA builds and manages industrial estates. This latter function, for which revenues of about Mau Rs 7 million per annum are received, is managed in a separate fund. The government’s initial investment of Mau Rs 67 million to start building industrial estates has been converted to share capital in MEDIA. Net revenues are reinvested in further construction. The government is considering the possibility of having these industrial buildings and those belonging to the Development Bank of Mauritius under a government-owned company.

  • Mauritius Meat Authority imports meat and operates the local abattoirs in order to supply private butchers. The authority was established in part as a public health measure to provide properly run, hygienic abattoirs. The Authority is not self-financing, but, as private butchers reportedly make large profits, even though meat prices are controlled, the Authority is examining a proposal to open its own shops.

  • The sugar industry (Mauritius Sugar Authority, Mauritius Sugar Industry Research Institute, Mauritius Sugar Bulk Terminal Corporation, Sugar Planters Mechanical Pool Corporation, Rose Belle Sugar Estate). Even though the bulk of the Mauritian sugar industry is privately owned, a number of public enterprises play an important role in the sector. The first four listed above are financed by a cess on sugar revenues. The Rose Belle Sugar Estate is the only government-owned sugar estate; it makes small losses. The African Development Bank is financing an upgrade of the mill.

  • Mauritius Telecoms was created from a merger of the domestic and overseas telecommunications services and is highly profitable. It is structured as a private company but remains wholly government-owned. A subsidiary company has been set up jointly with a Singapore firm to offer a pager service in Mauritius.

  • National Housing Development Company (NHDC) is a contractor, building house on sites with government-provided services.21

  • National Transport Corporation (NTC) is the government-owned bus company subject to significant private competition, particularly on the profitable routes. The government also uses NTC to serve unprofitable routes. In return, the NTC uses lines of credit from India to buy buses, and the government services the loans.

  • State Informatics Limited (SIL). Structured as a private company, SIL’s major project has been the introduction of computers into government.

  • State Trading Corporation (STC). Since July 1995, the STC has again received a substantial budgetary subsidy to cover its losses on sales at officially fixed prices of imported “ration” rice and flour. The STC is the sole authorized importer for these two products as well as for petroleum products. It also imports half of the country’s cement requirements. The STC’s profits on its petroleum account have traditionally been paid to the government as dividends. However, the STC has recently been making losses on its petroleum account, because controlled petroleum product prices were not adjusted to reflect the increase in international petroleum prices. Consequently, petroleum product prices were increased by around 25 percent on average in December 1996.

V. Money and Credit

A. The Structure of the Financial System

72. There has been little change in the structure of the financial system in recent years. The system essentially comprises the central bank (the Bank of Mauritius, BOM), 10 commercial banks, 7 offshore banks, several nonbank financial institutions (largely public in nature), and the stock exchange.

Commercial banks

73. Mauritius has a highly developed commercial banking system, with 10 commercial banks, 5 of which are incorporated locally while the remaining 5 are branches of foreign banks. As of end-June 1996 there were 148 branches of banks (including head offices), 15 counters, and 2 mobile vans, meaning that there were fewer than 8,000 inhabitants per branch.

74. The major noteworthy change in the institutional structure in 1995/96 was the closure of two banks. In April 1996, the BOM formally closed the Mauritius Cooperative Central Bank Ltd. (MCCB), which had been experiencing financial problems for some years and had been placed into receivership in 1994. All of MCCB’s depositors were paid off at a final cost to the BOM of nearly Mau Rs 400 million, including the recovery of assets amounting to about Mau Rs 300 million. The BOM also revoked the licence of the Union International Bank (UIB) in May 1996, after it had collapsed because of fraud on the part of its management. In November 1996, the Bankruptcy Court approved an offer by the Delphis Bank to take over the assets and liabilities of the UIB.

75. The banking system is highly concentrated, with the two largest banks accounting for more than half of private sector deposits and credit to the private sector. The State Bank of Mauritius (SBM) is majority state owned—although 34 percent of its capital has been sold to the public and consideration is being given to further privatization—and is responsible for much of the banking business of the parastatals and the public sector, while the Mauritius Commercial Bank (MCB) has strong ties to the private industrial (including the EPZ), sugar, and tourism sectors. In addition to the SBM and MCB there are three other Mauritian banks: the Indian Ocean International Bank, Delphis Bank, and the South East Asian Bank. The remaining banks are branches of foreign banks, namely, Barclays Bank, Bank of Baroda, Habib Bank, Hong Kong and Shanghai Banking Corporation, and Banque Nationale de Paris Intercontinentale (BNPI). With the exception of the SBM, all banks are members of the Mauritius Bankers’ Association.

Offshore banks

76. There are presently seven offshore banks: Barclays Bank PLC; State Bank International (a joint venture of the State Bank of India and the SBM); Bank of Baroda; BNPI; Banque Privée Edmond de Rothschild (Océan Indien) Ltée; Hong Kong and Shanghai Banking Corporation; Banque Internationale des Mascareignes (a joint venture of Crédit Lyonnais, Banque de la Réunion, and the MCB). There have been no new entrants since 1994.

77. Offshore banks are allowed to conduct all types of banking business with nonresidents and are also allowed to grant credits in foreign currencies to residents of Mauritius. Despite the advantages that offshore banks enjoy—they are not subject to Mauritian taxes, or liquidity and reserve requirements—there has been very little demand from onshore business for loans expressed in foreign currency. As of end-December 1995, total assets of the offshore banks amounted to US$669.1 million, up from US$377.7 million as of end-1993 (Appendix II, Table XXXVI).

Nonbank financial institutions

78. The major nonbank financial institutions are the Mauritius Housing Corporation (MHC), which provides government-subsidized mortgages to low-income homebuyers,22 and the Development Bank of Mauritius (DBM), which provides financing for priority sectors. The MHC is mainly financed by government agencies and the National Pensions Fund (NPF). The DBM provides medium- and long-term financing for industry, agriculture, construction, and tourism. It is financed by long-term borrowing from the government and from abroad and by the domestic issue of tax-free bonds.

79. The Postal Savings Bank (PSB) mobilizes small-scale deposits through a countrywide network of counters and transfers the resources to the government. The PSB is relatively insignificant in size, with its total deposits amounting to less than 1 percent of the deposits of the commercial banks.

80. The Mauritius Leasing Company (MLC) is a joint venture of two commercial banks (the MCB and the BNPI) and quasi-public sector entities (the SBM, the DBM, and the State Investment Corporation (SIC)).

81. Other nonbank financial institutions include the NPF (the most important nonbank financial institution), the SIC, the State Insurance Corporation of Mauritius (SICOM), the Sugar Insurance Fund Board (SIFB), and a number of private insurance companies. The NPF has a monopoly of providing retirement, disability, and death benefits to private sector employees;23 self-employed individuals can use the services of the NPF on a voluntary basis. The SIC provides equity financing, while SICOM manages parastatal and private pension funds. The SIFB provides stock loss insurance to sugar producers against cyclones, drought, and excessive rainfall. Private insurance companies offer life and general insurance.

The stock exchange

82. The Mauritius Stock Exchange (MSE) was opened in 1989 with five listed companies. Initially there was rapid growth but turnover has recently been static in nominal terms, and there have been no new issues in the last year. As of end-June 1996 there were forty listed companies on the MSE, and turnover amounted to Mau Rs 1.5 billion, while capitalization has grown to Mau Rs 30.3 billion from Mau Rs 1 billion at the startup. The decline in activity of the MSE in real terms has taken place despite significant tax incentives for going public. There is also an over-the-counter market with turnover of some Mau Rs 216 million.

83. In addition to the MSE, there are two closed end funds: the National Investment Trust (NIT) and the Mauritius Fund Ltd. The NIT, which is local in character, focuses on stimulating investment by small-scale investors while the Mauritius Fund, which is quoted on the London Stock Exchange, is designed to facilitate foreign investment. The Mauritius Fund is fully subscribed, despite the lackluster performance of the market during the last few years, perhaps reflecting the interest of foreign investors in diversifying their portfolios. Moreover, a second country fund, the Port Louis Fund Limited, of US$60 million is expected to be launched during the first half of 1997. Of the Fund’s US$60 million, US$45 million would be invested in equities of state-owned enterprises, while the remaining US$15 million would be earmarked for investments in the MSE.

B. Monetary Policy Formulation and Instruments

84. The BOM has changed its approach to central bank credit, partly in response to growing excess liquidity on the part of the banks. The BOM had used quantitative limits on access to its refinancing facilities and changes in the rate applied with a view to regulating both liquidity and the level of interest rates. Since 1995 the BOM has de-emphasized the importance of refinancing policy in both areas.

85. Commercial banks are permitted to borrow from the BOM at the bank rate up to specified limits; beyond those limits, central bank credit is available at a penalty rate of twice the bank rate. The bank rate has, since 1994, been linked to the average treasury bill rate and the magnitude of refinancing has fallen to a level where it is equivalent to less than half a percent of total credit to the private sector. The BOM provides refinancing at preferential rates for sugar exports and export financing. The margin between the bank rate and the treasury bill rate was set at 1 percent and refinancing for export financing has been set, since July 1, 1995, at 1 percent over the bank rate, that is, 2 percent over the treasury bill rate.

86. In addition to the preferential export refinancing in an effort to aid EPZ firms in leasing machinery and equipment, the BOM created in 1995 a special line of credit for the Mauritius Leasing Company (MLC) and other approved leasing companies. This line of credit was open for three years at 8 percent for a total amount of Mau Rs 500 million. Leasing companies were allowed to charge 2 percent over the 8 percent rate and were to repay their borrowing over five years.

87. Banks are required to satisfy minimum reserve requirements and a liquid assets ratio. In July 1996, the cash reserve requirement, which includes banks’ cash in hand and deposits with the BOM, was reduced from 10 percent to 8 percent. Moreover, in July 1996, the liquid assets ratio—defined as the ratio of holdings of treasury bills, government securities with a residual maturity of less than seven years, and BOM bills to total deposits—was reduced from 23 percent to 20 percent. The liquid assets ratio has had the effect, at times, of creating a captive market for government paper. More recently, though, the banks have been so liquid that the cash and liquid assets ratios have not been a binding constraint and excess liquidity has typically equaled about 10 percent of the required liquid assets (Table 15).

88. While the BOM has not used variations in the ratios for controlling liquidity, it has used changes in the modality of calculation as a means of encouraging credit to the EPZ. Between July 1995 and July 1996, an overall cash and liquid assets ratio of 28 percent (within which the cash reserve requirement was 8 percent, compared with a then overall ratio of 33 percent and a cash reserve requirement of 10 percent) was set on the new deposits to the extent that the counterparts of new deposits were lent to EPZ enterprises.

89. In September 1996, the BOM introduced a new facility when it began repurchase operations (repos). These are sales of treasury/BOM bills to banks and other financial institutions24 with an agreement to repurchase the securities at an agreed rate after a specified period of up to 14 days. By the end of September 1996, there had already been a total of Mau Rs 3.3 billion in repo transactions. Interest rates have ranged from 3.79 percent (for 1-day operations) to 9.33 percent (for 14 days).

C. Banking Supervision

90. Despite the failure of two banks in the first half of 1996, the overall position of the Mauritian banking system appears to be sound. Banks in Mauritius are regulated and supervised by the Banking Supervision Department of the BOM, using relevant legislation under the Banking Act of 1988 and the Bank of Mauritius Act of 1966. The authorities also plan to introduce legislation in 1997 regarding money laundering, modeled upon the OECD Task Force’s recommendations.

91. The BOM is responsible for licensing new onshore and offshore banks. On January 1, 1997, the minimum capital required was raised from Mau Rs 25 million to Mau Rs 50 million. At the same time, the ratio of Tier I capital to total assets was raised from 8 percent to 9 percent and will be further increased to 10 percent in June 1997. Adequate provisioning for bad debts was introduced in 1995. In addition, the BOM has required that external audits of the commercial banks review their risk management systems, and the BOM has held tripartite meetings with the external auditors and each commercial bank to discuss their individual positions. On-site and off-site surveillance is being strengthened and the BOM is considering the introduction of limits on open foreign exchange position of the commercial banks.

D. Monetary and Credit Developments

92. Broad money increased rapidly in 1995/96, rising by 15.9 percent as compared with 11.8 percent in 1994/95. Most of the growth was in the form of quasi-money (Table 16). This increase was a response to buoyant export-led growth but also reflected the liquidity impact of the disbursement of the US$150 million international floating rate note (FRN) issue in October 1995. For the same reason, after having contracted by 3.2 percent in 1994/95, net foreign assets rose by 28.6 percent in 1995/96. On the other hand, domestic credit grew by only 6.4 percent in 1995/96, as compared with 17.6 percent in the previous year. The growth in 1995/96 came almost evenly from increases in claims on government and on the private sector. The former grew entirely on account of an expansion of commercial banks’ claims on the government since the monetary authorities actually decreased their claims on the government in 1995/96 (Appendix II, Table XXXIX). The increase in credit to the private sector of 5 percent was considerably lower than the 10 percent growth in nominal GDP for 1995/96. This may be the result of a combination of a “wait-and-see” attitude on the part of private investors and reportedly healthy profits in the key real sectors, which are likely to have strengthened their ability to self-finance investments. The only sector to which credit increased appreciably in 1995/96 was that of “personal, professional, and housing” (Appendix II, Table XLII). The increase in credit to this sector may have partially reflected an increase in investment in ancillary tourist activities, such as small shops, restaurants, and accommodation other than hotels.

93. Interest rates showed only marginal variation, decreasing slightly (Appendix II, Table XXXVIII). To some extent this may reflect a lack of competition for deposits on the part of the banks, many of which are able to rely on their continuing business relationships with clients to cushion themselves from competition.

VI. External Trade and Payments

A. Balance of Payments

Overall developments

94. Following a policy of export diversification and product upgrading, Mauritius has experienced a period of sustained export-led economic growth since the mid-1980s. Despite the strong performance of the export sector, the external current account of Mauritius has usually been in deficit. In many years, however, the deficit has reflected purchases of aircraft and ships which, given the comparatively small size of the economy, tend to have a disproportionate impact on the balance of payments. Excluding aircraft and ships, the current account nevertheless attained a deficit of SDR 41 million in 1993/94 (equivalent to 1.8 percent of GDP), as exports stagnated (Chart 11; Table 18; and Appendix II, Table XLIII). The overall balance was strongly in surplus throughout the 1980s and early 1990s, with EPZ exports, tourist earnings, and foreign direct investment contributing to the accumulation of considerable foreign exchange reserves. However, Mauritius’s reserves declined during 1992/93 because of exceptional debt prepayments by the government, a fall in foreign investment, and a major investment abroad, and again in 1993/94, because of a larger current account deficit. Consequently, foreign reserves as expressed in months of imports fell from a peak at 7.0 months in 1991/92 to 4.9 months at the end of 1993/94.



Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Sources: Stock Exchange Commission of Mauritius.


Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Source: IMF, International Financial Statistics.


(In percent of GDP)

Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Source: Bank of Mauritius

95. The current account sharply declined in 1994/95, falling to a deficit of 5.6 percent of GDP. This was caused by several factors, including very low sugar exports (as the sugar crop was hit by Cyclone Hollanda in early 1994), and the purchase of an aircraft by Air Mauritius. Although this purchase was mainly financed with external loans, the financial account was almost in balance, as deposits in foreign currency abroad soared with the suspension of the Exchange Control Act in July 1994. As a result, foreign reserves fell further, to the equivalent of 3.8 months of imports at the end of 1994/95.

96. In 1995/96, the current account improved to a deficit of SDR 23 million, or 0.9 percent of GDP. With a partial recovery in sugar exports, total exports picked up, recording the strongest growth since 1991/92, of nearly 6 percent in SDR terms. As no aircraft was purchased that year, imports declined from the previous year. The tourism sector also performed strongly, contributing to a surplus in the services balance of SDR 128 million, or 5 percent of GDP. In addition to the improvement in the current account, the financial account recorded a large surplus of SDR 95 million (excluding reserve assets), owing to the financial inflow corresponding to the international Floating Rate Note (FRN) issue in October 1995 of US$150 million. Consequently, the declining trend in reserves assets was reversed, and international reserves recovered to the equivalent of 4.6 months of imports at end-June 1996.


97. Exports grew by 2.8 percent per annum on average in SDR terms from 1990/91 to 1995/96. With labor costs rising because of full employment, and the world economy in a recession, these average annual growth rates were well below those experienced during the 1980s. In 1995/96, however, exports are estimated to have grown by 5.8 percent in SDR terms, after 3.4 percent in 1994/95, thanks to a rebound in sugar exports. Expressed as ratios to GDP, both exports and imports have fallen in the 1990s, indicating a more active role for the domestic economy (Chart 12). The relative importance of the sugar sector declined steadily, with sugar exports accounting for only 9 percent of GDP in 1995/96, compared with 20 percent in the early 1980s, and for less than 25 percent of total exports (Appendix II, Table XLIV). On the other hand, although EPZ exports constitute nearly 30 percent of GDP, sugar is still a major source of net foreign exchange earnings, as the import content of sugar (estimated at about 20 percent) is much lower than in the EPZ (some 60 percent) (Appendix II, Table XLV). Textile products still account for more than 80 percent of the EPZ’s exports, but Mauritius has begun to diversify into other products, and is successfully exporting anthurium flowers and chemicals in the world market. With a freeport having been established in 1993, Mauritius aims to increase its reexports of finished goods to Réunion and other countries in the region.



Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Source: Central Statistical Office.

98. Sugar exports exceeded SDR 250 million between 1990/91 and 1992/93 (Appendix II, Table IX), but a drought in 1993/94 caused them to fall to a level of SDR 230 million. Mauritius was also struck by a cyclone in early 1994, which destroyed a considerable part of the sugar crop, thus further diminishing exports in 1994/95 to SDR 222 million. Sugar production began to recover in 1995/96, and exports reached SDR 236 million. Most Mauritian sugar exports (85–90 percent) go to the European Union. The EU has recently committed itself in the Final Act of the Uruguay Round to import a volume of 1,295,000 tons of sugar at preferential prices from African, Caribbean and Pacific (ACP) countries. For Mauritius, this implies that the country will keep the export quota of 507,000 tons that was fixed under the Lomé Convention’s Sugar Protocol.25 In June 1995, the EU and ACP countries concluded the Special Preferential Sugar (SPS) Agreement covering a six-year period, to cover the so-called refiners’ deficit. This gives Mauritius an additional quota (negotiated every year), which amounted to 94,000 tons in 1995/96, at a guaranteed price equivalent to 85 percent of the one guaranteed under the Sugar Protocol. However, Mauritius was only able to export 13,500 tons under the SPS Agreement in 1995/96, as the production level was still far below its full potential. Sugar export prices are related to the EU prices under the Common Agricultural Policy (CAP), which have fluctuated in recent years, reaching ECU 523.7 in 1995/96. As European tariffs on agricultural products are expected to be lowered after 2001 as a result of further trade liberalization in the context of WTO negotiations, European sugar producer prices, as well as guaranteed prices under the Sugar Protocol, are likely to decrease at that time.

99. Sugar exports to the United States are comparatively small in size. Mauritius is allocated 1.2 percent of the total sugar import quota as announced annually by the U.S. Department of Agriculture. After the EU and U.S. quota requirements have been met, the residual of the sugar production is sold in the world market at unremunerative prices (Appendix II, Table X). These exports to the world market were only marginal during the last two years, reflecting low levels of production. Moving successfully into the production of high-quality sugar (produced according to strict norms of hygiene and destined both for consumption as well as industrial usage), Mauritius has been able to increase sales of special sugars up to a volume of 70,000 tons in 1993/94 and 57,000 tons in 1995/96. These sugars are sold at a premium and contribute to higher export unit values.26

100. Exports from the EPZ grew yearly by an average of 4.5 percent in SDR terms between 1990/91 and 1995/96. Over this period, the share of EPZ exports in total exports continued to rise slightly, from 65 percent to 68 percent (Appendix II, Table XLIV). It is expected that 1996 will have been a particularly successful year, as a number of customers who had previously switched to suppliers in Asia have reportedly returned. Despite efforts aimed at steering production into areas other than textiles and garments, the nontextile share of exports has remained practically constant over the past few years, at less than 20 percent.

101. More than 90 percent of EPZ exports are directed to the European Union and the United States, owing to the preferential access Mauritius enjoys under the Lomé Convention and the Multi-Fibre Agreement (MFA), respectively (Appendix II, Table XLVI). Sales to the United States proved to be particularly successful since 1993 as a major competitor failed to fulfill its quota obligations and Mauritius was able to meet the ensuing demand, thereby increasing its share of exports to the United States from 18 percent in 1992 to 25 percent in 1993 and 1994. However, the U.S. market for textiles has been both competitive and highly volatile in the past. In the European market, Mauritius has been able to establish close relationships with its customers and has achieved high flexibility in adjusting its production to short-term demand conditions, which has given Mauritius a competitive edge over low-cost producers from the Far East. However, with the phaseout of the MFA as agreed under the Uruguay Round, Mauritius will face stronger competition both in Europe and in the United States.27

102. The export share of other goods (such as tea, molasses, flour, cut flowers, and chemicals) amounted to 9.6 percent of total exports in 1995/96. Mauritius has become the leading producer of anthurium flowers, but exports of tea are declining. Nearly half of other exports consist of reexports of finished goods, which have undergone bulk breakage or minor processing and which are directed mostly toward countries in the region. The significance of the reexport business is likely to increase as the freeport comes into full operation.


103. Imports grew by 3.1 percent per annum on average in SDR terms between 1990/91 and 1995/96, excluding ships and aircraft (Table 18; and Appendix II, Table XLIII). As for exports, import growth slowed down in the 1990s, compared with the 1980s. The overall structure of imports for the whole economy has not changed significantly over the past four years. Petroleum and intermediate goods account on average for 53 percent of all imports (Appendix II, Tables XLVII and XLVIII), with the rest divided between consumer and capital goods. Since 1990, the share of consumer goods has increased, as incomes have been rising on a broad scale; this has been at the expense of imports of capital goods. As a result, the share of capital goods in total imports fell further, to 20.1 percent in 1995, from 27.2 percent in 1990.

104. The terms of trade increased steadily between 1988/89 and 1992/93, as import prices were increasing more slowly than export prices were. In particular in 1991/92, the growth of import unit values was less than 3 percent, owing mainly to a decline in petroleum prices (Chart 12, and Appendix Tables XLIX and L). In 1993/94, this trend was reversed, caused by a strong growth in prices for manufactured materials and machinery, which pushed up production costs for enterprises. In 1994/95, the terms of trade declined further, as the growth in export prices was limited to 4.5 percent, reflecting the stiff competition in international markets.

105. The imports of the EPZ grew by 4.6 percent in SDR terms on average between 1990/91 and 1995/96. Consisting mainly of intermediate goods and machinery, EPZ imports are necessarily related to EPZ exports. As a result of sustained efforts to move to higher-quality export products and thereby to increase the local amount of value added, the import content of EPZ exports declined from 83 percent in 1990 to 55 percent in 1992 (Appendix II, Table XLV). In 1993, this trend was broken, reflecting the pressure on the textile sector to compete more effectively in the world market by investing in more sophisticated and expensive machinery and equipment. Consequently, the ratio in the import content of EPZ exports rose to about 60 percent in 1994 and 1995.

106. Imports of basic food ingredients (rice, flour, and wheat) grew nominally by 20 percent in rupee terms on average in 1994/95 and 1995/96, partly as a consequence of increases in the price of rice (which is Mauritius’s main food staple). In real terms, food imports grew by about 8 percent each year on average between 1992 and 1995. Petroleum imports have risen by only 4 percent per annum in rupee terms since 1990, partly reflecting an average annual fall in prices of 2 percent.

Services and transfers

107. The services account reflects mostly activities in the tourist sector and has remained consistently in surplus since 1986/87, and amounted to 5 percent of GDP in 1995/96 (Chart 11). After a drop in 1991/92 and 1992/93, reflecting a slowdown of growth in tourism—resulting from adverse events in the Persian Gulf region—and in exports of other services, the surplus grew by nearly 60 percent per annum in SDR terms between 1992/93 and 1995/96, and is estimated to have reached SDR 128 million in 1995/96.

108. Most of the tourist activities are reflected as part of “transportation,” consisting of port disbursements and passenger fares, and in the “travel” accounts. With tourist numbers having grown by 60 percent between 1989 and 1995 (Appendix II, Table XX), the growth on the credit side of transportation mainly reflects an increasing number of passengers carried by the local airline. Air Mauritius has a share of about 50–55 percent of the total passenger load to the island. The airline has become attractive by offering nonstop flights and high quality service. However, given that premium hotels are attaining full capacity during the peak season, prospects for further strong growth in tourism are uncertain. The debit side of services has also increased by nearly 60 percent in SDR terms since 1989/90, owing to rising exports and a growing volume of outbound travel, both for business and for private purposes. The travel item contains payments for tourist exchange and related services, as reported by the commercial banks. The credit side rose by about 15 percent in 1995/96, reflecting the growing number of tourists and their increased per capita spending (average earnings per tourist were SDR 671 in 1995 compared with SDR 544 in 1989), while the debit side stagnated.

109. “Transportation” accounts consist to a large extent of freight that is closely related to imports. Only about 30 percent of freight charges are paid to resident carriers; therefore, with slowing growth in trade volumes, payments to foreign carriers and insurers grew less rapidly over the last two years. Consequently, the deficit in the “Transportation” accounts was stable, at SDR 47 million, in 1994/95 and 1995/96.

110. Other services continue to have a net balance deficit, estimated at SDR 20 million in 1995/96. These comprise nonmerchandise insurance (e.g., insurance for the sugar harvest), telecommunications, expenditure for promotion and consultation (both public and private), payments for the newly established computer technology park and other government services. Expenses for telecommunications have markedly increased in recent years, reflecting the closer integration of Mauritius in the world economy.

111. As for income, government and parastatal companies are carrying about half of the interest burden on the debit side. With the early repayment of some external loans, income debits decreased from SDR 55 million in 1991/92 to SDR 41 million in 1994/95. However, they rose to SDR 48 million in 1995/96, owing mainly to interests paid on the FRN. The bulk of income credits (around 90 percent) comes from foreign reserves. Owing to a decrease in these foreign reserves and declining interest rates in international markets, receipts have recently declined, from SDR 62 million in 1992/93 to SDR 24 million in 1995/96.

112. Current transfers include essentially private transfers originating from Mauritian expatriates, with about a third of the private funds coming from the United Kingdom. In SDR terms, the credit side of current transfers has increased by 50 percent since 1990/91, and is estimated to have reached SDR 112 million in 1995/96.

Financial accounts and reserves

113. After showing a surplus averaging SDR 37 million per annum, the financial account (excluding reserve assets) weakened in 1992/93 and 1993/94 and posted a deficit of SDR 12 million on average over these two years. This was mainly due to a number of exceptional transactions, in particular major investment by commercial banks abroad. At the end of 1992, the Mauritius Commercial Bank (MCB) acquired 66 percent of the share capital of the Banque Française Commerciale Océan Indien (BFCOI) for Mau Rs 620 million.28 The BFCOI, based in Paris, has branches in Madagascar, Mayotte, Réunion, and Seychelles. In 1993/94, there was another transaction of a similar nature as the State Bank of Mauritius invested Mau Rs 440 million in its new branch in Bombay, again leading to a negative private direct investment balance. In addition, external loans extended to the private sector during these two years only slightly exceeded repayments, in contrast with previous years. As a result, international reserves decreased between June 1992 and June 1994 by SDR 182 million, to the equivalent of 4.9 months of imports at end-June 1994, from the peak of 7 months at end-June 1992.

114. In 1994/95, notwithstanding the financial inflow corresponding to the financing of the purchase of an aircraft by Air Mauritius, amounting to some SDR 75 million, the financial account balance (excluding reserve assets) recorded only a small surplus of SDR 5 million. As the Exchange Control Act was suspended in July 1994, foreign currency transfers to accounts abroad increased significantly. Given the larger-than-usual current account deficit (owing to the purchase of an aircraft and low sugar exports), international reserves decreased further in 1994/95, to the equivalent of 3.8 months of imports at end-June 1995.

115. Developments in 1995/96 were marked by the FRN issue in October 1995, which resulted in an increase in portfolio investment from SDR 10.1 million in 1994/95 to SDR 115 million in 1995/96. Foreign direct investment was higher than in previous years, albeit reaching only SDR 22 million or 0.9 percent of GDP, owing to a project financed by Singaporian investors to build a new horse racing course. In addition, deposits in foreign exchange abroad stabilized. As a result, the financial account (excluding reserve assets) was in surplus by SDR 95 million, and international reserves increased by SDR 82 million, to the equivalent of 4.6 months of imports at end-June 1996.

B. External Debt

116. The burden of external debt service on Mauritius was greatly reduced after the government undertook serious efforts in the late 1980s and early 1990s to reduce its external borrowing. The ratio of outstanding external debt to GDP was reduced from 40 percent in 1988 to 29 percent in 1994, and the debt-service ratio relative to exports declined to 7.3 percent in 1993/94 (Chart 13; and Appendix II, Tables LI and LII). This trend was reversed in 1995 and 1996, on account of the loan to Air Mauritius for the purchase of an aircraft and the FRN issue, which contributed to an increase in the ratio of outstanding debt to GDP to 31.7 percent in 1996. With Eurocurrency loans and Fund stand-by arrangements repaid, Mauritius’s obligations consist mainly of debt to bilateral and multilateral creditors on relatively concessional terms. However, the composition of external debt shifted toward a larger share of debt owed by the private sector, which rose from 7 percent in 1988 to 21 percent in 1994, before declining to 18 percent in 1996 because of the large public sector borrowing during the last two years. Within the public sector, the outstanding debt in 1996 was almost evenly shared between central government and parastatal organizations. However, the proceeds from the FRN issued by the central government are being on-lent to parastatals through the NIDF.



Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Sources: Ministry of Finance; and Bank of Mauritius

117. With the relative decline in the debt burden, the impact of debt service has also been reduced. In several years, however, Mauritius undertook early repayments of debt obligations, which pushed the debt-service ratio temporarily upward. In 1990/91, there was an early repurchase made to the Fund; and in 1992/93, Mauritius prepaid sterling-denominated debt. As the volume of development projects financed by direct government (rather than public enterprise) borrowing had been rising, new public debt commitments became more concessional in the early 1990s, with average interest rates declining to 4.8 percent and the average grants element increasing to about 30 percent in 1993 (Appendix II, Table LIII). In 1994 and 1995, however, substantial disbursements were made on market conditions. As a result, the average interest rate increased to 5.9 percent and the average grant element decreased to less than 20 percent in 1995.

C. Regional Cooperation

118. Mauritius belongs to four regional groupings. The first of these is the Preferential Trade Area for Eastern and Southern African States, which was transformed in November 1993 into the Common Market for Eastern and Southern Africa (COMESA).29 The second regional grouping is the Indian Ocean Commission, which was set up in 1982 with a view to promoting economic, social, and cultural cooperation between the islands of the Indian Ocean, including the Comoros, Madagascar, Mauritius, Réunion Island, and Seychelles. A program aiming at promoting intraregional trade by providing for the removal of trade barriers and the facilitation of payments is being implemented. Thirdly, Mauritius is a signatory to the treaty establishing the African Economic Community, concluded in June 1991 in Abuja, Nigeria, which provides for the gradual establishment of an African Economic Community by 2025. Fourthly, Mauritius became the twelfth member of the Southern African Development Community (SADC) in August 1995. A trade protocol was signed between SADC member countries in September 1996, and is expected to enable Mauritius to expand its reexports further through its freeport, and narrow its trade deficit with its partners, notably South Africa. Within SADC, Mauritius has assumed the responsibility of coordinating policies and programs in the tourism sector. In addition to belonging to these groupings, Mauritius has decided to implement the Cross Border Initiative (CBI) reform agenda, in a regional effort to promote cross-border economic activity in Eastern and Southern Africa, and is taking part actively in another initiative aimed at setting up an Indian Ocean Rim. These regional cooperation efforts are expected to help Mauritius in meeting the challenges facing its economy, by making it a regional trade and financial services hub in the future.

D. Exchange and Trade System

119. The Mauritian rupee was pegged to an undisclosed currency basket between February 1983 and July 1994. Over this period, the nominal effective exchange rate (NEER) as measured against the main trading partners depreciated by 34 percent, falling at a somewhat slower pace in the 1990s. However, given the strong increase in relative prices, the real effective exchange rate (REER), which had been moving broadly in line with the NEER, ceased to decline in 1988 and followed a more stable course thereafter (Charts 14 and 15; and Appendix II, Tables LIV and LV).



(1980=100; foreign currency per rupee)

Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Source: IMF, International Financial Statistics.1/ Information Notice System multilateral weights based on the geographical pattern of trade and tourism and including third market effects in 1980–82 on average.2/ Relative consumer price; domestic price index/weighted-partner price indices.3/ Based on relative consumer prices.



Citation: IMF Staff Country Reports 1997, 030; 10.5089/9781451827699.002.A001

Source: IMF, International Financial Statistics.1/ Information Notice System multilateral weights based on the geographical pattern of trade and tourism and including third-market effects in 1980–82 on average.2/ Based on relative consumer prices.

120. In July 1994, an interbank foreign exchange market was set up through a page on the Reuters screen.30 The Bank of Mauritius assumes the role of one among several market players, intervening in the foreign exchange market by buying or selling dollars. In addition, five commercial banks have access to the system. At the same time as the foreign exchange market was established, the Exchange Control Act was suspended, so that banks and their customers became free to buy and sell foreign exchange without restriction. Since then, both the NEER and REER have depreciated by 16 percent and 9 percent, respectively, going some way in correcting the competitiveness losses recorded in the early 1990s.31

121. In September 1993, Mauritius accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement, having abolished in August 1993 its forward cover facility and the exchange guarantee scheme for nonresident accounts. Its exchange and trade system is free of restrictions on the making of payments and transfers for current international transactions. With the suspension of the Exchange Control Act in July 1994, there are no longer any repatriation, domiciliation, or surrender requirements for Mauritian residents receiving foreign exchange. Capital transactions were also completely liberalized, as a 5 percent tax levied on capital being transferred abroad was abolished in 1994, and the approval of the Bank of Mauritius is no longer required for international capital transactions by residents. A detailed description of the exchange system at end-December 1996 will be contained in the Annual Report on Exchange Arrangements and Exchange Rate Restrictions, 1997.

Table 1.

Mauritius: Growth and Structure of Gross Domestic Product, 1989/90–1995/96 1/

article image
Source: Central Statistical Office, National Accounts of Mauritius.

Sugar crops and milling included in fiscal year harvested; otherwise, averages of calendar-year data.

Table 2.

Mauritius: Expenditure on Gross Domestic Product at Current Prices, 1/ 1989/90–1995/96

article image
Sources: Central Statistical Office, National Accounts of Mauritius; and Bank of Mauritius.

Normalized with the balance of payments.

Table 3.

Mauritius: Macroeconomic Balances, 1/ 1989/90–1995/96

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Sources: Central Statistical Office; Ministry of Finance; and Bank of Mauritius.

Normalized with the fiscal accounts and the balance of payments.

Table 4.

Mauritius: Sugar Production, Earnings, and Investment, 1989/90–1995/96

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Sources: Mauritius Chamber of Agriculture; Mauritius Sugar Syndicate; and Mauritius Sugar Authority.

Crop harvested in June-November and marketed through following June.

One arpent equals 1.043 acres, or 0.4221 hectare.

Table 5.

Mauritius: Employment by Economic Activity, 1990–96

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Source: Central Statistical Office, Surveys of Employment and Earnings.

Not elsewhere specified, mainly Development Works Corporation.

Table 6.

Mauritius: General Wage Settlements and Developments, 1989/90–1995/96

(In percent)

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Sources: Central Statistical Office; Ministry of Finance; Ministry of Labor; and staff estimates.

Averages. Generally tapered, with only lower-paid workers receiving full adjustment.

The reference period is generally the previous 12 months.

Indicative only. Based on averaged survey data for larger establishments; employees paid on monthly basis weighted 4/5, and those on daily basis, 1/5.

Indicative only. Simple average of percentage increases for employees paid on monthly and daily basis. Excludes piece workers (roughly one fourth of EPZ work force, generally earning more per day than daily workers) and workers paid on other bases.

Reported averages through 1986/87, employees paid monthly thereafter (99 percent of total).

Averages of calendar-year estimates.

Table 7.

Mauritius: Average Earnings by Sector—Monthly Paid Employees, 1990–96

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Source: Central Statistical Office, Surveys of Employment and Earnings.

Not elsewhere specified.

Deflated by the consumer price index.