Mauritius: AfDB Development Budget Support Loan of US$ 30 Million to Finance Economic Reforms

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Mauritius: AfDB Development Budget Support Loan of US$ 30 Million to Finance Economic Reforms

Tunis, 28 March 2007 – The African Development Bank is supporting a programme in Mauritius aimed at putting the economy on a higher growth path and making it less vulnerable to external shocks. Toward this end, the AfDB Board of Directors today approved a budget support loan of US$ 30 million for the country. The loan marks the country’s re-engagement with the Bank since the last transaction in 1987.

The loan is intended to support the implementation of the government’s reform programme. It will help fill a portion of the financing gap during three fiscal years from 2006/7 to 2008/9. The loan will be disbursed in three equal tranches – US$ 10 million annually over a period of three years.

To strengthen economic growth and guarantee its sustainability, the government has decided to implement a reform programme aimed at reducing the budget deficit and the debt burden in order to bring them to more sustainable levels; improving productivity in the traditional sectors of the economy with a view to restoring their competitiveness and facilitating the development of exports. The programme also seeks to improve the institutional framework for business by streamlining procedures for business registration and incentives schemes in order to attract more foreign direct investments. The programme will also contribute to employment creation and social equity promotion.

To attain these objectives, the programme will consolidate fiscal performance and improve public sector efficiency, enhance trade competitiveness, improve the investment climate and democratize the economy through participation, social inclusion and sustainability. Reforms to be introduced as part of the programme include the reduction of tax expenditures (exemptions and exonerations) by 0.5 per cent of GDP, the adoption of a legislation to abolish ministerial discretion over tax and duty exemptions, measures to strengthen tax administration, the revision of the corporate tax rate, the unification of investment incentive regimes, the deepening of financial services, measures to reduce time to start business, ease restrictions on work and residency permits and expand support to SMEs, the preparation of a master plan for poverty reduction, and the implementation of training and re-employment programmes.

Mauritius’ economic performance has been strong over the past three decades, with annual rates of growth averaging over 5 per cent. However, economic growth slowed down to an average of 3.4 per cent over the past four fiscal years (2001/2 –2004/5). Mauritius is currently facing a sharp transition from dependence on trade preferences to open competition in the global economy. Moreover, it is doing so in a difficult environment because of trade shocks caused by the erosion of trade preferences in sugar and textiles and the rise in oil prices. The combined effect of these developments has led to the deterioration of the country’s fiscal performance.

The budgetary support extended by the AfDB to Mauritius is a testimony of the development partners’ confidence in the country. Mauritius enjoys a stable political system based on a multiparty democratic republic. For a quarter century Mauritius has been a consistently good performer and has exhibited impressive resilience through recent trade shocks. The country enjoys strong leadership, a high degree of social consensus, robust institutions and a tradition of pragmatic economic management. The last Public Financial Management (PFM) evaluation for Mauritius was in 2003 and it concluded that Mauritius had one of the most transparent budgetary processes in Africa.

Since the beginning of its operations in the country in 1975, the African Development Bank has funded 35 operations in Mauritius to the tune of US$ 176 million (5.7 billion Rupee).