The last Article IV Mission of the International Monetary Fund (IMF) to Mauritius has highlighted the need for fiscal consolidation to stabilize public debt in the medium term. Official figures show that the public sector debt at March 2021 has reached 91.3% of GDP. The Central Government Debt is at 82.7% of GDP while Public Enterprises Debt stand at 8.6% of GDP. In real terms, Gross Public Sector Debt is valued at Rs 388 Bn.
The Mauritian Public Sector Debt has never been so high. The last time that Mauritius has had to raise so much money to reboot the economy was in the early 2000s. At that time, the Mauritian economy was still struggling to recover from the Asian financial crisis and was heavily impacted by the oil price shocks caused by the two Iraqi wars. At that time, public sector revenue dwindled as the Taiwanese and Hong Kongese moguls had pulled their funds and had closed their textile companies as the costs of doing business increased in the region. According to the records of the IMF, Central Government Debt has peaked at 67.8% of GDP in 2003 before being brought down to 49.3% in 2007.
Although policymakers have tried hard to keep debt below 60% of GDP during the 2008 financial crisis and its aftermath, by 2015 it was understood that if Mauritius seeks to grow beyond what was deemed as the 3% anemic growth rate, it had to invest massively in modern infrastructure. The fall of the BAI also had major implications on the economy as returns on local investment declined from 12% in average in 2014 to 8% in 2016. Although the Mauritius Revenue Authority (MRA) was able to collect a record level of revenue throughout the 2015-2019 period, reaching Rs. 98.4 Bn. In 2019, the expansive social security system now cost the Government over Rs 30 Bn annually, reducing the margin for capital investments considerably.
With the Covid-19 pandemic, the Mauritian Government has had to call on the Bank of Mauritius (BoM) to intervene. The Central Bank then gave Rs. 60 Bn. to the Government in May 2020 to avoid a credit crunch. However, the IMF Article IV Mission has reminded both Central Bank and Central Government that this unusual intervention will weaken the BoM’s credibility and capacity for effective monetary policymaking and that they should refrain.
This leaves the Government with little option.
As the Ministry of Finance and Economic Development’s figures show, while public sector debt stood at 83.4% of GDP in September 2020, it increased slightly to 84.3% in December of the same year before reaching 91.3% of GDP in March 2021. Official data shows that the Government has raised funds both locally and internationally. While local debt made up 63.1% of GDP in September 2020, at March 2021, it represented 66.2% in March 2021. External debt was assessed at 20.3% in September 2020 and at 25.1% in March 2021.
The IMF Article IV Mission has taken note of the Rs. 20 Bn surge in the public sector debt that took place between September 2020 and March 2021 alone. It called upon Central Government to “preserve fiscal sustainability and build buffers given the substantial increase in public debt level.”
