Statement by the IMF Staff Representative

This 2004 Article IV Consultation highlights that real GDP growth of Mauritius is expected to rebound to about 4½ percent in 2003/04. This largely reflects the recovery of tourism and sugar production, and continued strong construction and transportation activity. The current account is projected to remain in surplus with the recovery of the tourism sector offsetting a widening in the trade deficit. The capital and financial account is projected to register a small deficit of 0.8 percent of GDP in 2003/04 compared with a surplus in 2002/03.

Abstract

This 2004 Article IV Consultation highlights that real GDP growth of Mauritius is expected to rebound to about 4½ percent in 2003/04. This largely reflects the recovery of tourism and sugar production, and continued strong construction and transportation activity. The current account is projected to remain in surplus with the recovery of the tourism sector offsetting a widening in the trade deficit. The capital and financial account is projected to register a small deficit of 0.8 percent of GDP in 2003/04 compared with a surplus in 2002/03.

This statement provides additional information that has become available since the issuance of the staff report. The information does not alter the thrust of the staff appraisal.

1. On June 11, 2004, the Deputy Prime Minister and Minister of Finance submitted to the legislature the budget for 2004/05. The budget assumes real economic growth of 5½ percent for the fiscal year, largely on account of a more optimistic forecast for the financial services, tourism and export processing zone sectors than contained in the staff report, and inflation of 4 percent, which is in line with staff projections. The overall fiscal deficit is budgeted at 5 percent of GDP, compared with 4.7 percent recommended by the staff. The higher deficit is mainly due to larger capital outlays.

2. The budget contains a tax package that includes part of the measures recommended in the staff report, as well as other measures. The main difference with the measures proposed by staff are in the income tax, where the staff report had assumed no significant changes. In addition, the authorities did not implement the proposed measures to reduce VAT exemptions and the list of zero-rated commodities. The yield from the package is nonetheless expected to be about 1 percent of GDP, slightly higher than that arising from the proposals discussed in the staff report, mainly owing to reforms in corporate taxes and increases in some excises. The package proposes broad income tax reforms, including a redistribution of the tax burden from low to high income earners and an increase in the contribution of the corporate sector, thus broadening the tax base. Specifically, the number of brackets for the personal income tax will be increased from two to four, with the rate on the highest bracket being raised from 25 to 30 percent and that on the lowest bracket being lowered from 15 to 10 percent. The special allowances for investment to encourage firms to modernize their plants have been reduced, and an Alternative Minimum Tax will be imposed on corporations that distribute dividends. Moreover, the threshold requiring professionals and the self-employed to register with the tax department and submit returns has been lowered. The budget also proposes higher excise duties, a reduction of customs duties on selected items, a higher ceiling for the allowance on interest income, a new tax on tourism (to take the form of an arrivals fee incorporated in the airline ticket), and improvements in tax administration.

3. The government also announced its intention to improve the debt maturity profile. To do this, the Loans Act has been amended to allow for the issuance of a wider range of long-term debt instruments.

Mauritius: Staff Report for the 2004 Article IV Consultation
Author: International Monetary Fund