Mauritius banking sector stayed strong in 2013: IMF report
However, the international financial institution recommended closer collaboration between the government and the central bank. (Image: IMF)
Mauritius banking system remains well-capitalized, profitable, and resilient to shocks, according to IMF directors at the recently concluded Article IV consultation with Mauritius.
However, they observed that persistent excess liquidity in the banking system has encouraged riskier lending, and to address this issue, they recommended closer collaboration between the government and the central bank.
It may be noted that there were instances of open disagreements between the Bank of Mauritius governor and the Finance Ministry after the last monetary policy committee meeting when the key repo rate was kept unchanged.
Governor Rundheersing Bheenick had, together with 2 other MPC members, voted for a rise in repo rate to contain inflation, but the 5 external members of the MPC from the finance ministry voted for repo rates to remain unchanged, to avoid dampening corporate sector lending.
Drilling deeper into the banking sector, the IMF noted that non-performing loans (NPL) increased slightly in 2013, but banks remained profitable with a 20 percent return on equity, despite low leverage ratios.
The central bank implemented macro prudential measures aimed at addressing emerging NPLs in the construction and real estate sectors as well as rising indebtedness.
Threats to financial stability posed by a Ponzi-like scheme in 2013 were contained successfully, and the regulatory framework was subsequently improved.
Also, Mauritius has established a track record as a reformer with strong institutions and a dynamic private sector.
Hence, the Africa Training Institute (ATI) is set to open in June 2014 in Ebene.
At a macroeconomic level, the IMF report noted that a stable environment was maintained in 2013, despite difficult external developments.
Real GDP growth was lower than expected at 3.2 percent in 2013, mainly on account of construction, sugar and tourism.
With subdued international prices, inflationary pressures declined in 2013, despite the public sector wage increases, and year-on-year inflation fell to 3.5 percent.
Throughout the year, sluggish domestic demand and low international inflationary pressures helped anchor inflation expectations and price rise was controlled.
Also, the unemployment rate was unchanged compared to 2012 at 8.0 percent, but failed to go down.
While revenues remained broadly unchanged in proportion of GDP, expenditures increased by over 2 percent of GDP.
Expenditure increases were linked to wages increases following the Pay Research Bureau’s (PRB) report, which increases civil servant salaries beyond annual inflation adjustments periodically with the next adjustment expected in 2016.
Additional spending was also related to the flash floods in Port Louis on March30, 2013, as well as unplanned transfers to local governments and public enterprises.
The country statistical capacity continues to be strengthened, as Mauritius subscribed to the IMF’s Special Data Dissemination Standard (SDDS) in February 2012, being the second Sub-Saharan African country to do so and is working on subscribing to SDDS Plus.
IMF noted that the near-term growth outlook is generally favorable, but an uncertain external environment carries risks.
Accordingly, IMF encouraged the authorities to pursue greater economic diversification through structural reforms to make the economy less dependent on traditional sectors.
It may be noted that sugar and tourism are two sectors which have been the economic pillars of the island nation so far, but both sectors are facing multiple challenges.
IMF also encouraged Mauritian authorities to bring in tax reforms and overhaul public enterprises to tackle budget deficits over the medium term.
To bolster Mauritius’s international competitiveness and reduce the large current account deficit, they recommended greater exchange rate flexibility, well-prioritized infrastructure investment, and stepped-up labour and manufacturing sector reforms.
Finally, the IMF agreed that further pension reforms were mandated, to boost national savings while strengthening social protection.