faster rupee depreciation, and slower growth. While recent one-off quasi-fiscal MAURITIUS Key conditions and operations have helped reduce the level of public debt, the soundness of the fiscal pol- challenges icy framework has been eroded by the re- liance on unconventional measures. Policy Table 1 2021 Mauritius’ development trajectory was be- priorities thus include sustained fiscal con- Population, million 1.3 coming more fragile even before the pan- solidation and better alignment between GDP, current US$ billion 11.5 demic hit in 2020, causing a contraction monetary and fiscal policies. GDP per capita, current US$ 9096.5 of 14.6 percent of GDP. Interrelated struc- Promoting greater labor market opportuni- a 1.8 Lower middle-income poverty rate ($3.65) tural challenges during the last decade led ties is a priority to achieve inclusive growth, a 13.5 to persistent fiscal deficits and a growing especially jobs for the youth and women Upper middle-income poverty rate ($6.85) a 36.8 public debt-to-GDP ratio. Weaknesses with low educational attainments. Over Gini index School enrollment, primary (% gross) b 98.4 stem from stagnating private investment, 50,000 youth aged 16 to 29 are neither study- Life expectancy at birth, years b 74.2 loss of export competitiveness, skill short- ing nor working, of which about 1 out of 3 Total GHG emissions (mtCO2e) 6.5 ages coexisting with high structural unem- has obtained at most a certificate of primary ployment, rising inequality, and mounting education. Only 1 in 2 women participates Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2017), 2017 PPPs. pressure on public finances from high and in the labor market (1 in 3 women among b/ WDI for School enrollment (2021); Life expectancy increasing social security spending driven those with low educational attainment). (2020). by an aging population. Mauritius success- The impact of COVID-19 has reversed re- fully handled the COVID-19 health emer- cent gains in women’s labor force participa- gency, and the extensive state support de- tion, as women were significantly more like- ployed during COVID-19 effectively pro- ly to be laid off during the pandemic. After a muted recovery in 2021, real tected livelihoods. Yet, it came at a high cost for the country’s public finances. GDP is projected to grow 5.8 percent in Public debt spiked despite a Rs55 billion 2022. Headwinds from the war in (12.3 percent of GDP) non-refundable Recent developments Ukraine hit Mauritius hard through transfer to the government from the Bank higher inflation, lower tourism activity, of Mauritius (BoM) in FY2020/21, and a GDP rebounded by 3.6 percent in 2021, and a deterioration of the current ac- previous Rs18 billion transfer (3.5 per- aided by widespread COVID-19 vaccina- cent of GDP) under the FY2019/20 bud- tion covering 90 percent of the eligible count. With higher fiscal pressures, im- get. Those transfers blurred the separa- population by end-June 2022. Most sectors proving fiscal discipline, including tion of monetary and fiscal policies. The are back to pre-pandemic levels, but a 35 through pension reform, and avoiding the newly created Mauritius Investment Cor- percent output gap remains in tourism, reliance on quasi-fiscal operations, are key poration (MIC), owned by the BoM, in- further hit by headwinds from the war in creased contingent liabilities, and further Ukraine. Since the reopening of borders in policy priorities. COVID-19 reversed re- threatens the efficacy of anti-inflationary October 2021, tourism arrivals have im- cent gains in poverty reduction and fe- policies. Headwinds from the war in proved substantially, reaching 557,245 male labor force participation. Ukraine caused renewed inflationary over January-August 2022, up from 6,966 pressures, current account deterioration, during the same period the previous year. FIGURE 1 Mauritius / General government balance and FIGURE 2 Mauritius / Actual and projected poverty rates debt and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 2 110 25 450000 0 100 400000 -2 90 20 350000 -4 80 -6 70 300000 15 -8 60 250000 -10 50 200000 -12 40 10 150000 -14 30 -16 20 5 100000 -18 10 50000 -20 0 0 0 2012/13 2015/16 2018/19 2021/22e 2024/25f 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 General government balance (lhs) Primary balance (lhs) Lower middle-income pov. rate Upper middle-income pov. rate General government debt (rhs) Real GDP pc Sources: Statistics Mauritius, World Bank staff estimates. Sources: World Bank. Notes: see Table 2. MPO 1 Oct 22 Annual headline inflation rose to 4 per- government’s reliance on unconventional costs delaying its recovery, which will cent in 2021 from 2.5 percent in 2020, dri- and one-off measures to respond to the ad- happen gradually over the medium term, ven by higher freight, energy, and food verse economic and fiscal effects of the assuming sustained tourism recovery and prices. Inflationary pressures increased COVID-19 pandemic, has eroded the qual- strengthened export competitiveness. The following the Ukraine war, with annual ity and effectiveness of institutions and fiscal deficit should moderate to 7.4 per- inflation reaching 8.8 percent in August policy-making. This, in turn, hampers cent of GDP in FY2022/23 as the eco- 2022, the highest in over a decade. To Mauritius’s resiliency and capacity to ab- nomic recovery accelerates and more tame inflation, the BoM raised the Key sorb future shocks. COVID-19 support measures are lifted. Repo Rate 15 bps to 2 percent on March Poverty (Upper-MIC threshold of $6.85 a As a result, public debt to GDP would 9, its first hike since June 2011, and 25 ba- day 2017 PPP) fell from 19 to 11 percent gradually decrease over the medium sis points to 2.25 percent on June 3. between 2012 and 2019. However, given term, assuming continued recovery and The fiscal deficit fell to 9.2 percent of GDP the dramatic contraction of GDP in 2020, gradual fiscal consolidation. in FY21/22, on the back of GDP recovery poverty is projected to have increased by Significant downside risks remain. Further and the progressive unwinding of over 5 percentage points, and fall below 14 COVID-19 waves, high fuel prices and low COVID-19 support measures. Proceeds percent in 2022. global growth may continue to weigh from the sale of shares of Airport Holdings down tourism, while heightened geopolit- Ltd to MIC in December 2021 for Rs13 bil- ical tensions and supply chain disruptions lion (2.7 percent of GDP) helped reduce may continue fueling global inflation. As public debt, which stood at 95.9 percent as Outlook interest rates in leading economies rise, the a share of GDP. rupee may depreciate further, fueling in- In 2021, Moody’s downgraded Mauritius’ GDP is expected to grow by 5.8 percent flation. Strengthening the institutional credit rating from its longstanding Baa1 in 2022 and 5.5 in 2023, supported by the framework and creating fiscal space level to Baa2. In July 2022, Moody’s once continued recovery of tourism, and de- through pension reform and other mea- again downgraded Mauritius’ to Baa3, al- celerate to its long-term trend over the sures supporting fiscal discipline will be beit with an upgrade on the outlook from medium-term. The current account deficit key to maintaining debt sustainability, negative to stable. The latest downgrade is expected to remain stable at 13.2 per- thereby strengthening the macroeconomic was based on Moody’s assessment that the cent of GDP in 2022, with higher import foundations for inclusive growth. TABLE 2 Mauritius / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f a Real GDP growth, at constant market prices 2.8 -14.6 3.6 5.8 5.5 4.2 Private Consumption 3.2 -15.3 3.0 2.6 2.3 2.0 Government Consumption 1.9 -1.0 -3.0 3.2 2.1 1.6 Gross Fixed Capital Investment 4.9 -25.8 13.9 1.1 1.4 0.8 Exports, Goods and Services -4.0 -27.7 11.5 22.8 20.8 17.3 Imports, Goods and Services 2.4 -29.2 7.9 12.5 13.0 12.4 Real GDP growth, at constant factor prices 2.9 -14.4 3.6 5.8 5.5 4.2 Agriculture 4.2 -1.9 7.2 2.9 3.0 1.7 Industry 2.3 -19.2 10.2 2.7 3.1 2.1 Services 3.1 -13.6 1.8 6.7 6.2 4.8 Inflation (Consumer Price Index) 0.5 2.5 4.0 10.2 6.1 5.6 Current Account Balance (% of GDP) -5.0 -9.3 -13.2 -13.2 -9.3 -7.8 Net Foreign Direct Investment Inflow (% of GDP) 24.6 -111.7 31.2 31.0 31.9 32.3 b Fiscal Balance (% of GDP) -10.5 -19.1 -9.2 -7.4 -7.0 -5.6 b Debt (% of GDP) 75.6 96.4 95.9 93.5 91.8 89.4 b Primary Balance (% of GDP) -7.9 -16.3 -6.6 -4.9 -4.8 -3.4 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 1.5 2.3 2.1 1.8 1.6 1.3 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 11.4 16.5 15.3 13.6 12.0 10.6 GHG emissions growth (mtCO2e) 1.6 -12.0 7.4 5.4 5.7 3.6 Energy related GHG emissions (% of total) 62.0 63.0 62.0 62.9 63.5 63.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Historical demand-side data is being revised due to a consistency problem. b/ Fiscal balances are reported in fiscal years (July 1st - June30th). c/ Calculations based on 2017-HBS. Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. d/ Projection using neutral distribution (2017) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 2 Oct 22