Mauritius Economic Outlook
Economic performance and outlook
The economy continues to expand steadily, with GDP growth estimated at 4% in 2017, edging up from 3.9% in 2016. Services contributed the most to growth in 2016, notably financial services (which grew 5.8%), tourism (which grew 5.5%), and information and communication technology (which grew 5.3%). Growth was underpinned by higher household consumption. However, investment remained weak, falling to 17% of GDP in 2016, well below its recent high of 25% in 2012. The short-term economic outlook is positive. GDP growth rates are projected to increase to 4.2% in 2018 and 4.3% in 2019, due to stronger investment, an increase in tourism, and an expected increase in external demand following stronger regional and global growth.
The fiscal deficit is expected to narrow slightly to an estimated 3.4% of GDP 2017, from 3.7% in 2016, and to decrease further in 2018, as the government implements fiscal consolidation measures and improvements in tax collection. The Bank of Mauritius continued to loosen monetary policy—the policy (repo) rate dropped from 4% in July 2016 to 3.75% in September 2017. The accommodative monetary stance of the Bank of Mauritius was widely considered appropriate in light of persistently low inflation, as low as 1% in 2016. However, inflation rose in 2017 as a result of anticipated increases in energy and food prices. The current account deficit increased from 4.4% of GDP in 2016 to an estimated 5.8% in 2017. The deficit is likely to widen in the short term, given the anticipated increase in private investment and the strong import component of the government’s public infrastructure program.
The medium-to long-term growth prospects are positive; key sectoral growth drivers are expected to continue performing well. Financial services, information and communication technology, retail and wholesale trade, and food processing are all likely to grow more than 5%. The economy is expected to diversify further into other higher value-added sectors, such as medical tourism and higher education services. A favorable business environment and recently adopted business-friendly regulations, such as the Business Facilitation Act, are expected to contribute to higher growth in foreign direct investment flows to the economy; an anticipated improvement in global economic demand is likely to boost exports of goods and services, as well as tourism arrivals and receipts. Government efforts to re-position Mauritius as a gateway for investment between Asia and Africa and further diversification of the country’s export markets are expected to boost the wider economy and consolidate the economy’s position as a regional services hub for Africa.
Increases in global energy and food prices are expected to hurt the economy’s current account balance and add to inflationary pressures, with headline inflation likely to reach 4.6% in 2018. Projected increases in recurrent expenditure and a narrow tax base are likely to limit the fiscal space needed for infrastructure and human capital investment. Other factors that may limit growth potential include government bureaucracy, insufficient capacity to innovate, and skills constraints, which hamper economic development and contribute to unemployment, which remains stubbornly high at 7.5%. Furthermore, institutional constraints may undermine efforts to speed up public investment and improve public service delivery.