IMF Urges Caution On Budget And Current Account Deficits

The International Monetary Fund Executive Directors agreed with the thrust of the staff appraisal completed earlier in May. Although they congratulate Mauritius on its management of the COVID-19, they noted nonetheless that the pandemic has severely weakened the Mauritian economic pillars resulting in widening fiscal and current account deficits. According to the IMF estimates and projections, the current account balance as a percentage of GDP will deteriorate from -12.6 in 2020 to reach 15.6% in 2021. Revenues have increased slightly from 21.8% of GDP in 2020 to 23.2% by end of this year.

The IMF encouraged the authorities to take advantage of the recovery to institute broad-based structural reforms to improve the resilience of the economy especially by developing a greener and more inclusive economy, while addressing debt sustainability concerns and strengthening the monetary policy framework.

The Executive Directors agreed that Mauritian monetary policy should remain accommodative in the near term, while preparing for the normalization of monetary and exchange rate policies. In this context, they again placed emphasis on central bank credibility, as well as monetary policy transmission and effectiveness. Directors echoed the Article IV Staff Assessment by calling on the central bank to refrain from providing direct financing to the government and engaging in quasi-fiscal activities, and advised reforming the Bank of Mauritius law, to preempt and avoid further exceptional transfers to the government. Directors also recommended that the central bank be recapitalized and relinquish ownership of the Mauritius Investment Corporation.