mauritius country economic memorandum: sharpening the ...€¦ · countryeconomicmemorandum:...

Report No. 13215-MAS

MauritiusCountry Economic Memorandum:Sharpening the Competitive EdgeApril 12, 1995

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Document of the World Bank

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ABBREVIATIONS AND ACRONYMS

ACP Africa, Caribbean and Pacific Group of CountriesADC Agricultural Development CompanyATM Automatic Teller MachineBoM Bank of MauritiusCEB Central Electricity BoardCPE Certificate of Primary EducationCSO Central Statistical OfficeCWA Central Water AuthorityDBM Development Bank of MauritiusDC Development CertificateDWC Development Works CorporationEU European UnionEE Export EnterpriseEPZ Export Processing ZoneEPZDA Export Processing Zone Development AuthorityESZ Export Services ZoneFARC Food and Agriculture Research CouncilFD Film Development SchemeFDI Foreign Direct InvestmentFZ Freeport ZoneGATT General Agreement on Tariffs and TradeHCC Housing Construction CompanyNHDC National Housing Development CompanyHeDC Health Development CertificateHoDC Hotel Development CertificateHMSC Hotel Management Service CertificateHPAEs High Performing Asian EconomiesIBE Industrial Building EnterpriseIVTB Industrial Vocational Training BoardMCA Mauritius College of the AirMIFA MultiFiber ArrangementMGI Mahatma Gandhi InstituteMIE Mauritius Institute of EducationMEDIA Mauritius Export Development and Investment AuthorityMEE Modernization and Expansion EnterpriseMERT Marginal Effective Rate of TaxationM'FA Mauritius Freeport AuthorityMFPA Mauritius Family Planning AssociationMHC Mauritius Housing Company Ltd.MSPA Mauritius Sugar Producer's AssociationMLC Mauritius Leasing Companv Ltd.MSB Mauritius Standards BureauNIE Newly Industrialized EconomyNIT National Investment TrustNMF National Mutual FundNPF National Pension FundNPB National Pay BureauNPrB National Productivity BureauNPPC National Pay and Productivity CouncilNRB National Remuneration BoardOAS Old Age SecurityPRB Pay Research BureauPSE Pioneer Status EnterprisePTI Private Training InstitutionsPVT Pre-Vocational TrainingSBM State Bank of MauritiusSEC Stock Exchange CommissionSEM Stock Exchange of MauritiusSIC State Investment CorporationSICOM State Insurance Corporation of MauritiusSLE Strategic Local EnterpriseSME Small and Medium Scale EnterprisesUoM University of MauritiusVAT Value Added TaxVCF Venture Capital Fund

ANNUAL AVERAGE EXCHANGE RATES

Year Mauritian Rs/US $

1984 13.8001985 15.4421986 13.4661987 12.8781988 13.4381989 15.2501990 14.8631991 15.6521992 15.5631993 17.6481994 17.960

CONVERSION FACTORS FOR WEIGHTS AND MEASURES

Arpents Acres Hectares

Area: I arpent = 1.000 1.043 0.422I acre = 0.959 1.000 0.4051 hectare 2.369 2.471 1.000

Short tons Metric tons Long tons

Weight: I short ton 1.000 0.907 0.810I metric ton = 1.102 1.000 0.984I longton = 1.235 1.016 1.000

GOVERNMENT OF MAURITIUSFISCAL YEARJuly I to June 30

Thisreport is basd o h findings;ofta mi s:sion t-hat v-isited: Mauri1tius& in December 1993.: The.missio wsldbMrmaulAp(AF3C2; Task Maaer,adi compried Mesrs Dan

Mae ..SD) Donb Mclmmac (Eld) M arti Raa(>DPRaj agd Coslat nMrOhn wah PRT, ere.a pe revewe. TeBn emwre wit a3 Mariizcuneqa temldb (r.RnhesngBieik Drco,Mni-PfEoomcPann

and Development and comprising other senior staff ~~~~OThroug th A .is: d itativ proess ealiedrats ofti eotwr led eiwdb h atoiisM maulAp icseh

reprt iththeautoriiesin ecebe 194. he iew an reommndaion i the repot ar

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MAURITIUS: COUNTRY ECONOMIC MEMORANDUM

TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................... i

CHAPTER 1 :INTRODUCTION .............................................................. I

CHAPTER 2: RECENT ECONOMIC DEVELOPMENTS AND CONSTRAINTS .......3Economic Policies and Performance during 1989-93 ................................................. 3Future C hallenges ............................................................... 5

CHAPTER 3: LONG-TERM VISIONAND POTENTIAL ...................... ...................... 10Long-Term Vision and Medium-Term Development Objectives . . 10East Asian Experience and Relevance for Mauritius .. 11.............................. 1Relevance for Mauritius .............................................................. 14

CHAPTER 4: PUBLIC POLICYAND MACROECONOMIC STABILITY ................... 19Continued Growth and Sustainability .............................................................. 19Level and Structure of Public Expenditures .............................................................. 20Greater Burden Sharing with the Private Sector ........................................................ 22The Parastatal Sector .............................................................. 22Macroeconomic Stability .............................................................. 24

CHAPTER 5: THE INCENTIVE STRUCTURE ............................................................ 27Reforming Indirect Taxation ............................................................. 27Rationalizing Investment Incentives ............................................................. 30

CHAPTER 6: FACTOR MARKETS .............................................................. 35Labor Market, Employment and Wages ............................................................. 35Pension and Social Security Systems ............................................................. 45Financial and Capital Markets ............................................................. 51

CHAPTER 7: TECHNOLOGICAL CAPABILITY ........................................................ 61Technology .............................................................. 61Human Resource Base .............................................................. 63

CHAPTER 8: INFRASTRUCTURE .............................................................. 66Emerging Capacity Constraint .............................................................. 66Public Investment Program .............................................................. 68

CHAPTER 9: POVERTYALLEVIATIONAND SOCIAL EQUITY ............................. 70Income Growth, Equity and Poverty ............................................................. 70

Social/Living Standards ............................................... 72Current Social Challenges ............................................... 73

TEXT BOXES

Box I Total Factor Productivity Estimates ................................................ 6Box 2 Mauritius and the Uruguay Round Accords ................................................ 9Box 3 Cases and Conditions of Successful Strategic Intervention ............................. 17Box 4 Issues in Indirect Tax Reform ........................................ 28Box 5 Public Sector Employment ............................................... 42

TEXT TABLES

Table I Mauritius - Selected Economic Indicators .4Table 2 Sources of Growth - Mauritius and comparators .... 6Table 3 Mauritius - Employment, Labor Cost and Productivity in

Manufacturing 7Table 4 Mauritius and Comparators - Selected Economic Indicators 13Table 5 Mauritius and Comparators - Educational Attainment . 16Table 6 Mauritius and Comparators - Public Expenditure Size and Allocation . 21Table 7 Mauritius - Labor Force and Employment Trends . 36Table 8 Mauritius - Employers' Views on Wages .37Table 9 Mauritius - Public Pension and Social Security Expenditures 50Table 10 Mauritius and Comparators - Infrastructure Density .67Table 11 Mauritius - Distribution of Household Income .70

Table 12 Mauritius - Selected Social Indicators 71

APPENDICES

A. RMSM-X for Mauritius

B. Poverty and Social Expenditures

C. Matrix of Alternative Pension Systems in OECD Countries

D. Import Tax Structure and Revenues

E. Statistical Tables

Table I Population and Vital Statistics, 1952-92Table II Social Indicators and Employment, 1972-92Table 111.1 GDP by Sector in Current Prices, 1984-97Table 111.2 GDP by Sector in Constant 1987 Prices, 1984-97Table 111.3 GDP by Sector in Current Prices, Percentage Shares, 1984-97Table 111.4 GDP by Expenditure in Current Prices, 1984-97Table 111.5 GDP by Expenditure in Constant 1987 Prices, 1984-97Table 111.6 GDP by Expenditure Category, Percent at Current Market Prices,

1984/97Table IV. I Balance of Payments, in millions of Rupees, 1984-97Table IV.2 Balance of Payments, in millions of US dollars, 1983-97Table V. Foreign Debt, 1984-97Table VI. I General Government Operations, 1983/84-1996/97Table VI.2 Government Operations, Composition of Subtotals, 1983/84-

1996/97Table VI.3 General Government, Percent of GDP at Market Prices, 1983/84-

1996/97Table VIA4 Functional Classification of Government Expenditure, 1983/84-

1992/93Table VII Monetary Survey, 1983/84-1996/97Table VIII. I Composition of Gross Domestic Capital Formation, 1984-93Table VIII.2 Selected Indicators on the EPZ, 1984-93Table IX. I Sectoral Deflators of GDP, 1984-97Table IX.2 Expenditure Deflators of GDP, 1984-97Table IX.3 Exchange Rates, 1984-97Table X Summary of Key Macroeconomic Indicators, 1983-97

Executive Summary i

MA URITIUSCOUNTRYECONOMICMEMORANDUM: SHARPENING THE COMPETITIVE EDGE

EXECUTIVE SUMMARY

Introduction

i. Mauritius's authorities are devising a stra -gy to overcome constraints to further rapidgrowth of the economy, which have arisen from the strain put by fast growth on domestic factormarkets and institutions and from changing international conditions. On the home front, theabundant low-cost labor has been exhausted, and enterprises face growing wage pressure and aneed to reduce their dependence on technology relying on low-cost labor. In addition, rapidmodernization (spread of industrialcommercial activity) has led to social stress which threatens toerode past social gains, while progressive aging of the population puts strains on socialmaintenance programs. Externally, the implementation of the Uruguay Round accords is likely toerode preferential access to the European Union (EU) and US markets for the country's sugarexports and eliminate it altogether for textiles. At the same time, the growing number of newlow-cost producers set to trade on the more open world textile market puts further pressure onMauritius's competitive position in this critical activity.

ii. Mauritius's rapid growth over two decades raised real per capita income more than four-fold and had considerable favorable social impact: full employment, more equitable incomedistribution, considerable reduction of absolute poverty and creation of a safety net for theresidual poor. But the fast growth has put strains on markets and existing institutions. Economicdevelopments during 1989-93 reflected these changing circumstances in terms of slower growth,declining quality of investment, an episode of inflation-induced larger macroeconomic gaps, andloss of international competitiveness. Notwithstanding, the authorities' vision is continued rapidand sustainable growth, permitting a quadrupling of per capita income within another generationto reach some US$ 10,000, with equitable sharing of the benefits.

iii. This would require breaking out of the 1989-93 events and onto a new macroeconomicpath, characterized by real GDP growth averaging 5-6 percent per annum driven to a larger extentby rising total factor productivity. This could be supported in the medium term by investmentaveraging 28-29 percent and national savings of some 26 percent. The external current accountgap, recently at 3.5 percent, would decline to around 2 percent by 1998, a level that could becovered by sustainable external resource inflows. This outlook would be consistent with financialflows in which net foreign assets increase at about 6 percent annually; domestic credit wouldexpand at some 10 percent (mainly to finance the private sector); and with foreign and domesticprices rising at 3 and 6 percent respectively, the nominal exchange rate would depreciate by acumulative total of 30 percent to keep the real rate from appreciating over the 1992 level. Inview of the constraints, the attainment of this vision would require far-reaching reform and

Executive Summary ii

innovation to transform the economy from a cheap, labor-based system to one that is technologybased. This report explores the conditions under which this might happen.

Anoroach of the Report

iv. Much work has been carried out in Mauritius and the Bank on the conditions for furthersustained rapid growth. This report takes up the issue of ways to respond to the constraintsidentified above. Prepared in collaboration with a team of Mauritian counterparts, it draws onthe experience of the High Performing Asian Economies (HPAEs) to make proposals for amedium-term policy agenda. In the economic sphere, the HPAE experience is distinguished bypublic policy environment that secured the "appropriate" fundamentals (e.g. stablemacroeconomy, limited price distortions and efficient support systems in the area of financialservices, for instance); limited and judicious use of strategic interventions; and combination ofgrowth with equity. Mauritius looks to benefit from this experience to reinforce some elementsof its past record that have proved their value and to revamp others.

v. Focusing on the goal of future sustainable growth through increasedcompetitiveness, the report makes proposals for an agenda centered on: (i) a new but limitedpublic sector role focused on creating a more proficient environment; (ii) policies to ensurecontinued macroeconomic stability and promote international competitiveness; (iii) reform of theincentive framework to permit increased efficiency in resource allocation; (iv) capacity to catch upwith and remain abreast of international technological best practice; (v) further modernization ofthe financial system and development of a capital market to improve the allocation of financialresources; (vi) policies to ensure adequate and efficient infrastructural services in support of thestrategy; and (vii) continuation of generally equitable but efficient social policies and mitigation ofsocial stress of rapid modernization.

New Public Sector Role

vi. In the past the public sector often intervened directly in markets. With the private sector'sdemonstrated strong ability to respond to opportunities and in view of the evident need for publicpolicy to facilitate the emergence of a productivity-based economy, the public sector functionneeds a new emphasis. The new public sector role should be more facilitative than interventionistand be played with reduced but refocussed public spending. Public expenditure share in GDP hasstabilized over the decade 1984-93 (at 25 percent) but shifted in composition. The shift favoredadministration (which went from 19 percent to 22 percent of total) and social services (rising from37 percent to 42 percent of total), against economic services (which declined from 16 percent to12 percent). The prominent element in administration expenditures is personnel. Social servicesexpenditures are dominated by pensions and social security.

vii. Greater efficiency in the public sector includes reduction in current expenditure growth.This would entail raising the public savings to an average of 4-5 percent of GDP during 1994-98.

Executive Summary iii

When this is done, it is possible to combine expenditure and tax reforms under budget neutrality,making it feasible to deliver on critical public sector functions with a revenue/GDP ratio whichfalls slightly to 22 percent. This is a goal which can be achieved in tandem with others vital to theproductivity-driven economy. This process would bring Mauritius's public expenditure share ofGDP closer to the average for the HPAEs (some 20-22 percent during 1980-92).

viii. The public sector can achieve further efficiency gains through an accelerated parastataldivestiture program. While privatization is being pursued as a means of achieving the broadereconomic goals of improved resource allocation, healthier public finance and increased domesticsavings, a clear policy is not yet in place. Such a policy should be developed, covering activitiesto be pursued in three phases. Short-run actions would include: (i) incorporation of publicenterprises as companies, including those operating as public boards or departments of ministries,(ii) offer for sale (through public offerings) of minority shares in companies owned by government(GoM) and the State Investment Corporation (SIC), with offers in additional companies on acontinuous basis and in line with the absorptive capacity of the Stock Exchange; and (iii) sale ofminority holdings in companies where the government holdings constitute a minority and a majorshareholder exists.

ix. Medium-term actions would comprise: (i) initiation of the issue of bonds to the public bystate-owned companies with large investment needs; (ii) creation of the institutions required forthe supervision/regulation of utilities; and (iii) offer to the public of shares in GoM and SICcompanies, including the auctioning of controlling interest in these companies. Long-run actionswould include: (i) complete divestiture by GoM and SIC of all holdings in the enterprises, exceptthose of strategic importance; and (ii) sale of public utility shares to the public, includingcontrolling interest.

Macroeconomic Stability

X. During the transition from one level of strong performance to a new plateau, goodmacroeconomic policy has to become even better in order to hold aggregate demand in line withthe less vigorous supply, while helping to accelerate the movement to the new level ofperformance. Developments over the period 1989-93 (in particular, two episodes of double-digitinflation sparked by large public sector wage awards, a bout of excess liquidity, appreciation ofthe real exchange rate) highlight the importance of keeping aggregate demand in line withmacroeconomic objectives.

xi. The fiscal and monetary origins of the recent pressures on the competitiveness of theeconomy point up the need for diligence in fiscal policy and its influence on aggregate demand;capital inflows and their impact on the monetary base; and the real exchange rate and its impacton competitiveness. In fiscal policy, a retrenched public sector (reductions in size of civil serviceand financial obligations in respect of parastatal companies etc.) would help achieve expenditurereductions which moderate aggregate demand pressures and also raise domestic savings. Withregard to capital inflows, the increasingly important impact of foreign assets has to be managed

Executive Summary iv

within overall money expansion targets by making compensating fiscal and credit policyadjustments. As to trade and exchange rate policy, the focus should be on keeping the realexchange rate from further appreciation not backed up by productivity gains over competitors,and narrowing down the differential in the effective rate (tariff- and subsidy-inclusive) betweenexports and import substitutes.

The Incentive Framework

xii. Reforming the tax and investment incentive system towards an undistorted, low-taxenvironment would improve resource allocation by eliminating the differentiation in incentivesfacing exports and import substitutes. This reform should be carried out in tandem withexpenditure cuts within a perspective of budget neutrality. Where indirect taxes are concerned,import tariffs should henceforth serve only the purpose of temporary protection; sales tax (ofvalue added variety--VAT) would be devoted to revenue raising, and excise taxes be used todiscourage production and consumption of selected goods for societal reasons. With importtariffs, the consolidation of the previous three taxes into one tariff introduced with the 1994/95budget should be part of a full program incorporating: (i) reduction of the number of tariff rates tono more than five (to curb complexity); (ii) cut in the maximum rate to about 30-35 percent; and(iii) elimination of zero rates.

xiii. The above changes would result in the external tariff (CET) structure towards which thecountries participating in the initiative to promote regional trade and investment (CBI) aresupposed to converge by 1998. More importantly, the structure would keep protection modestand also extend the tax base. Regarding protection, consider by way of illustration a producerfacing 30 percent tariff on the final output and 5 percent on the input and yielding 50 percentvalue added. Such a producer would enjoy 50 percent effective protection. In the case ofrevenue, the proposed rates applied to 1992 data on imports and collections show that, even withunchanged import levels but good administration, it is possible to achieve an effective yield rate of15 percent compared with 17 percent previously.

xiv. In parallel with the tariff reform, the sales tax would be: (i) changed to a VAT and leviedon consumption only; (ii) extended tax to services not currently covered and all consumer goodsincluding those imported; (ii) accompanied by a credit scheme to refund tax paid on capital goodsand other inputs. The rate would be adjusted modestly upwards if warranted for revenue reasons.Excise taxes would become (i) applicable to imports and domestic products that qualify; and (ii)converted largely to ad valorem rates.

xv. A reformed tariff and VAT system in a low tax-structure would eliminate the basis forspecial incentives whose purpose is to compensate for the disincentives of the tax system. Underthe coordinated reforms, since import-substituting enterprises could be afforded adequateeffective protection through the tariff structure all that would be needed would be a single export-oriented incentive scheme. The primary purpose of such a scheme would be to ensure thatexport-oriented activities are exempt from (or promptly receive drawbacks of) taxes on capital

Executive Summary v

and other inputs. The Industrial Expansion Act of 1993 sets the stage for full rationalization ofthe investment incentive framework to: (i) create a level playing field for all enterprises, and (ii)eliminate the regime's residual anti-export bias. The existing structure could be reorganized intwo steps. The first would consist of instituting two enterprise categories: export-orientedenterprise which would comprise Export Processing Zone (EPZ), Export Service Zone (ESZ) andFreeZone (FZ) companies; and (ii) the rest not primarily export-oriented and comprising theModernization and Expansion Enterprise (MEE), the Industrial Building Enterprise (IBE) and theSmall and Medium-scale Enterprise (SME), whose advantages can be handled through normal taxcredits for investments.

xvi. A second step would be the replacement of the present three-rate (zero percent, 15percent and 35 percent) corporate tax structure with a single rate system, possibly with theinclusion of a special rate for offshore companies. Two considerations would guide where to fixthe single rate. First, assuming an additional offshore company (OC) rate would be zero percent,the single non-zero rate could be fixed somewhere in the 25-30 percent range where it wouldequal the current average effective rate. Second, since some companies have commitmentslimiting their tax rate to 15 percent for life, further care must be taken in the overall reform toavoid an unsustainable revenue loss. However, timing the introduction of the new tax structure tocoincide with the introduction of the envisaged VAT and tariff reform would enable theauthorities to set the sales tax with due consideration for the desirable revenue levels and alsopermit the establishment of a single corporate tax rate at the incentive rate of 15 percent.

Labor Market

xvii. The objective of labor market reform would be to increase its fluidity to enable pocketsof underutilized labor to reallocate to areas facing relative shortage and achieve flexibility in wagesetting. There are few formal obstacles to labor mobility or blanket restrictions on jobtermination. The exception is the sugar sector where restrictions, including those under the SugarEfficiency Act requiring job security for those employed before 1988, have resulted inoverstaffing. With a more liberal labor regime, some 50 percent of the operations (a generalaverage combining harvesting, handling and transportation) could be mechanized. That wouldrelease up to 10,000 workers to other sectors. The public sector is another area which has somelabor redundancy. In the early 1980s, Mauritius had 5 civil servants per 100 inhabitants,

compared with the international average of 2-3 per 100 inhabitants. The proportion is still thesame in the 1990s, and there is still strong demand for government jobs, especially at the lowerlevels, where wages are more attractive than in the private sector. If Mauritius were to bring its

Heller, P. S. and Alan Tait, "Government Employment and Pay: Some International Comparisons, IMF,1983, reviewed central government size in 1980 in 47 countries (16 OECD industrial; 16 African; 5 Asian;and 10 Latin American). The OECD industrial countries had 3.1 employees per 100 population; Africa had1.8 per 100; and Asia and Latin America each had 2.6 per 100. Developing countries as a group had 2.4 per100.

Executive Summary vi

public sector in line with the intemational norms, some 20-25,000 workers at a minimum could bereleased to other sectors.

xviii. Significant changes are warranted in wage setting, and the creation of a National PayBureau (NPB) as part of the National Pay and Productivity Council (NPPC) is being consideredto bring this about. The centralized tripartite system granting across-the-board and mandatoryincreases linked to inflation results in a structure that is inflexible with respect to other factorsdetermining the worker's marginal value product. Under the decentralized mechanism,adjustments in the minima have compressed wages in the public sector by the application of theafter-tax maximum wage range 6.5:1 and resulted in unsustainable wage levels in parts of theprivate sector, including agriculture. In the public sector, the rigidity has resulted in thegovernment experiencing difficulty retaining senior managerial and technical staff, making it resortto non-wage facilities (tax-free cars for example) as partial compensation for them. In the publicsector, a change in wage policy that brings wages more in line with those in the private sectorwould remove the differentiation responsible for the overstaffling at the lower levels.

Pension and Social Security Systems

xix. Reform of the pension and social security system would facilitate the attainment of thelabor market and social cohesion objectives, including further poverty alleviation. The firstchange would be to increase "portability" of retirement benefits so as to contribute to labormarket flexibility. Currently, a fairly long vesting period (15 years) and non-transferability ofpension rights between the public service and the private sector constitute impediments for freeflow of labor between the sectors. This could be removed if the vesting period were to bereduced to five years, say, and the benefits made fully portable. In addition, it should be madepossible for a public servant who moves to and ends his career in the private sector to earnretirement benefits payable through the National Pension Fund (NPF) as though he hadaccumulated retirement credits in the NPF throughout his career. This is feasible only if the publicservice is integrated into the NPF. While this is recommended, the modalities require a detailedstudy.

xx. The second reform would aim at ensuring the future viability of the system even as thepopulation ages further. With this aging, the support ratio is likely to fall from 7:1 (7 active andone retired) at present to 3:1 by the year 2030, assuming the labor force participation rate and theretirement age remain unchanged. This means that the Old Age Social Security (OAS) and publicservice pension will weigh even more heavily on the budget and the NPF would experiencefunding problems. One step being considered is to raise the retirement age, from 60 years to, say,close to 65 years. This would explicitly recognize that the increased life expectancy means thatpeople can have a longer working life. More importantly it would ease the labor supplyconstraint, and also slow down the decline in the pensioner support ratio. In addition, the NPFcould: (i) increase the contribution rates but keep the target pension unchanged; (ii) reduce thevalue of the pension point while keeping the contribution rate unchanged; (iii) or implement a

Executive Summary vii

combination of the two. In the public pension system, changes similar to the contribution andbenefits can be introduced as with the NPF. More than that, the coverage of the OAS could bereviewed to limit its flat rate benefits to only the disadvantaged and the elderly poor. Such achange would be in conformity with the desire to inject greater efficiency into the welfare systemby targeting benefits to the poor.

xxi. The third change would aim at making the system actively support the development of acapital market. The idea would be to put "accrued benefits" in forms where they can be mobilizedinto the active pool of long-term savings. One question related to the public service pension iswhether or not partial funding would be instituted to give meaning to the portability of pensions.Once some amount of funding is introduced, the transfer of these "accrued liabilities" to the NPFwould augment the latter's volume of investible resources. With the reforms in the bankingsystem pricing credit at market rates, changes in the form in which contractual savings are heldshould encourage the use by businesses of such long-term funds.

Financial and Capital Markets

xxii. Efficient financial services, including well-developed term finance, would increase theefficiency and range of instruments available for channeling savings into investment in support ofthe productivity-based strategy. The financial market reforms of 1992-93 started a processtowards the development of a more competitive sector. The high degree of concentrationremains, however, a concern, and measures to increase competition should be actively sought.First, the setting of credit limits as a percentage of deposits should be changed as it discouragesbanks from increasing their capital. The desired monetary control goal can be pursued throughsetting reserve and liquidity ratios relative to deposits. However, the government intends togradually phase out the existing credit/deposit ratio. Second, the government's presence shouldbe de-emphasized, especially in the ownership and management of the State Bank of Mauritius(SBM). Third, the new initiatives for better banking (new clearing system and expanded use ofautomatic teller machines) should be introduced in a way as to avoid advantages to the biggerbanks over the smaller ones. Finally, the introduction of the deposit insurance scheme underconsideration would increase consumer confidence in the system and limit the authorities'

2liabilities in the event of bank failures.

xxiii. As part of the effort to further develop term finance in support of enterprise resiliency, anumber of steps could be taken to strengthen the performance of the Development Bank ofMauritius (DBM), the Mauritius Housing Company Ltd. (MHC) and Mauritius Leasing CompanyLtd. (MLC). The DBM could go on from its recent improved performance to become acontributor to the development of an active bond market, relying less on deposits (which maycreate a mismatch with its long-term lending) and turn to the issuing of long-term bonds. It coulddo so innovatively, using adjustable interest as all its loans carry an interest rate adjustment clause.

2The Bank of Mauritius does not agree with this assessment. It considers that the Banking Act of 1988 guardssufficiently against these risks.

Executive Summary viii

As to the MHC, its financial relation with the government under which it makes subsidized loansto low-income borrowers could be made more formal, through explicit transfers to cover thesubsidies. With this change, MIC could become a player in the market for long-term finance byissuing tradable bonds. In the case of the MLC, a first change would reform the tax treatment ofleases (which gives all the benefits to the lessee) by leaving the lessor and the lessee to decidewhich of them would benefit from the depreciation and investment credit. This way companieswithout high taxable income would benefit from lower interest when the lessor obtains thebenefits and deducts them from their tax liabilities. As an additional element, the practice ofrecognizing interest payments as investment for tax purposes should be abandoned. Secondly,leasing should be open to more institutions. This would require the abolition of the requirementof a special license.

xxiv. The capital market developments of the last two years can be taken further by reducingdistortions and encouraging a greater role for the emerging private interest. First incentives forinvestments in trusts (currently 30 percent of tax liability over three years) should be reduced tothe level of mutual funds (10 percent once). Next, the government would do well to continuereducing its role in markets that can be fully served by the private sector.

xxv. Where the Stock Exchange (SE) is concerned, systems under development to improve theoperation should be accelerated: a central Depository System that would modernize the sharetransfer, clearing and settlement system would allow investors to trade stocks without waiting toacquire title through registration with the company which sold the shares.

Technolo2ical Capability

xxvi. Mauritius's future growth must rely more on technical efficiency which requires a greatereffort on acquisition, diffusion and use of modern technology. This would be the way toovercome its past inadequate performance with respect to total factor productivity (TFP) and geton the path to productivity-driven growth. Most of the technology acquired to date came throughforeign direct investment (FDI). The continued maintenance of a sound macroeconomicenvironment and a stable and predictable regulatory regime would sustain this source of technicalknow-how which also helps diffusion by way of imitation of previously proprietary knowledge.Closely related is the transfer of technology embodied in imported equipment for a sector such astextiles where new producers replace the old. A comparable situation may serve to transfer toMauritian producers knowledge held by other suppliers/clients in search of standardization, higherquality and lower cost. These informal sources are, however, likely to diminish in importance asthe country goes up the product spectrum. Finally, nationals training or working abroad shouldbe seen as a potent medium for acquiring modern technology.

xxvii. Technology diffusion allows superior techniques to spread from one firm to another. Thediffusion takes place through formal contracting relationships as well as by informal contact. InMauritius, some subcontracting occurs within the EPZ sector (through cut, make and trimarrangements), but very little takes place between the EPZ and non-EPZ sectors. The transfer

Executive Summary ix

(through sale) of equipment from one firm to another is also an avenue for diffusion. This hasalso served as a conduit, albeit limited, when failed firms have sold their assets. In generalthough, more can be achieved through more formal efforts at diffiusion of technology, includingthrough the use of industrial standards, metrology and adherence to quality.

xxviii. A special effort is required to improve standards and quality by upgrading the operationsof the Mauritian Standards Bureau (MSB) which experiences difficulties in performing itsfunctions owing to limited facilities and staff strength. With limited staff and one laboratory tocover measuring instruments in some 15,000 premises, MSB is unable to fulfill its mission onmetrology. Similarly, its performance in testing is hampered by the use of obsolete equipment andlimitation to textile products. Even though MSB provides consultancy services for qualitycontrol, the absence of the strategic use of standards for exports remains a shortcoming. Themetrology, standards, testing and quality component of the Bank-supported project of TechnicalAssistance to Enhance Competitiveness (approved in May 1994) proposes assistance foraddressing this problem.

xxix. As a small country and a starter where world industrial standards are concerned, Mauritiuscannot expect to be at the forefront of technological innovation. Beyond assimilating importedtechnology, the next step would be the adaptation of imported techniques. At present, there arefew instances of adaptation beyond limited reported cases attributed to expatriates. Nevertheless,some research and development activity would be desirable especially in the two institutionscapable of such effort -- MSB and the University of Mauritius.

xxx. Mauritius currently faces shortage of the skills to accompany its drive for a technologicaledge because of insufficient general and specialized education and training. These are the resultsof limited opportunities for secondary education, and the relatively low quality of the output ofthe institutions including higher education. The first point of attack on the problem is to increaseaccess to and improve the quality of secondary education. Next, higher education through theUniversity of Mauritius ought to be strengthened by: (i) upgrading of faculty and equipment; (ii)concerted action to raise the quality of the science and engineering faculties; (iii) development ofpost-graduate courses and research; (iv) making post-graduate courses a pre-requisite forindependent research; and (v) gradually transferring all non-degree and certificate courses to othertertiary-level institutions.

xxxi. Additional steps would be needed to raise the quality of technical education throughimproving polytechnic education in the following areas: (i) selection of students through entranceexaminations; (ii) admission of students who intend to work as technicians rather than use thepolytechnic as a stepping stone to an engineering degree; and (iii) increasing the relevance of thetraining by allotting more time to science and mathematics; improving laboratory practices; (iv)exposing students to practical industrial problems during their second and third years; and (v)improving the practical relevance of the curriculum by giving teachers time to work in industry,undertake industrial consultancies or provide industrial extension services. Finally, thepolytechnics (Flacq/Rose Hill and Droopnath Ramphul) should develop a placement service and

Executive Summary x

strengthen linkages with the labor market and the Industrial and Vocational Training Board toassure better matching of skills with jobs in the economy. A Higher Education Project beingprepared with Bank assistance will address some of these issues.

Infrastructure

xxxii. Mauritius's infrastructure has been strained by past rapid growth, and it has becomeevident that the stock and its management ought to be upgraded to support the competitivenessstrategy. The road network has problems of alignment and drainage, and congestion is becomingnoticeable in the main business districts of Port Louis and Plaines Wilhems. The port facescapacity problems, as an insufficient number of dedicated berths leads to costly slow-down of thetumaround time for containerized vessels. There are similar constraints in the electric energysector where peak use just about equalled firm generating capacity in 1994, as well as in theeducation and health sectors where services are being provided in some areas in sub-standardfacilities.

xxxiii. Compared with the HPAEs, however, Mauritius is reasonably well endowed withinfrastructure. In the second half of the 1980s (for which we have comparable data), it had abetter road density than all the three on which we have data; its households were better suppliedwith electric power and safe water than in all but two cases (Korea and Singapore); and it hadbetter telephone service coverage than all but three cases (Hong Kong, Korea and Singapore).These indices suggest that perhaps Mauritius should be as concerned about managing the demandfor infrastructure services as about additional supply, if not more. This is a central point, ascongestion may be as much the result of overstimulated demand for underpriced services strainingsupply, as of undersupply stretched by rational demand.

xxxiv. The 1992-94 public sector investment program (PSIP) reflects infrastructure investmentplans of the order of 10 percent of GDP annually. The next three-year PSIP could propose acomparable level of investment effort if the needs surveyed briefly above were to be fully covered.Given the amount of effort required, it would be well for the authorities to consider all the optionsavailable for augmenting supply and managing the delivery of the services. Various forms ofpublic-private collaboration should be considered: private ownership and operation, publicownership with private operation, public ownership and operation.

xxxv. Private sector ownership and operation can be achieved either through the divestiture ofassets already in public hands or by the direct investment by the private sector in new facilities.The option of public ownership with private operation would entail the lease of public assets tothe private sector under either an ordinary contract or concession. Both transport and powerinstallations lend themselves to this type of treatment, and it may be worth considering for theairport, the rapid transit link between Port Louis and the outlying areas and blocks of powerinstallations. Even in the more traditional case of public ownership and operation, it is possible toenhance efficiency by applying commercial principles by giving managers full control overoperations (in return for being held accountable in return through performance contracts). The

Executive Summary xi

managers would follow sound business practices and the entities would be subject to the sameregulatory, labor and accounting standards as in private companies. Tariffs would be set to covercosts and explicit subsidies would be given to cover sales made at prices influenced by socialconsiderations.

xxxvi. For managing infrastructure services, the general principle should be one of moving topricing policies that give consumers of the services in question proper signals about scarcities.This approach would discourage wasteful consumption of the services of the installations, ensurethe financial survival of the supplier enterprises, and provide the incentives that could enticeprivate capital into the production of infrastructure services. The need for improved pricingpolicies for inducing efficient use of infrastructure services can be illustrated by the case of theenergy sector, specifically electricity, where the basic tariff structure has remained unchanged formore than a decade. Tariffs do not reflect the cost structure, the capacity charges aresubstantially below the cost of servicing the loads at peak times, and there is much cross-subsidization and discrimination in ways not justifiable economically. A prime example is thedifference in the structures between EPZ and non-EPZ companies. A reform of the managementof the demand for infrastructure services should be an essential part of the program to address theadequacy of such services in support of the productivity-driven competitiveness strategy.

Poverty Alleviation and Social Equity

xxxvii. Further poverty alleviation and social equity are as critical to increased productivity andcompetitiveness as they are ends in themselves. There has been substantial social progress overthe past two decades. Real household income grew at an average rate of 4 percent per annum;the income share of the poorest 40 percent of households rose from 16 percent to 19 percent; theproportion of the population below the poverty line fell from 40 percent to 1 I percent; infantmortality declined from about 51 to 14 per thousand; and life expectancy rose from 61 to 66 yearsfor males and from 66 years to 73 years for females.

xxxviii. Some challenges remain, nevertheless, such as unequal educational opportunities, andothers have emerged as a result of rapid modernization including shortage of housing, familypressures and concerns about workplace safety. First, high wastage in the early stages ofeducation is restricting access to a potent conduit to social mobility. The 59 percent pass rate atthe Certificate of Primary Education (CPE) is rather low and points up a deficiency in the system.A similar restrictive filtration operates at the junior secondary school level. These could bedisproportionately affect students from families without the discretionary income to hire privatetutors. Measures that would help more students succeed in the system would have majorbeneficial effects on equity in the long term.

xxxix. Second, while housing conditions have improved overall, the 16 percent of householdsthat are renters face limited choice and declining quality. This situation is due mainly to the effectof the Rent Control Act of 1964 which discourages new investments in rental housing and themaintenance of existing ones. The property market reform proposals being formulated by the

Executive Summary xii

National Economic Development Council should look to a liberalized market to stimulate supplywhile also regulating demand.

xxxx. Several sub-issues concern the status of women and general family well-being. Progresson these would strengthen social cohesion but also contribute to easing the labor marketconstraint through raising the female labor participation rate. The major sub-issues are a risingtrend of unsupervised births and births with complication; insufficient child care for workingmothers; the weight of household chores on women working outside the home; and increase inunwanted pregnancies with growing recourse to abortion in a country where it is illegal.

xxxxi. The increase in difficult births could be due to low use of pre-natal care, insufficient timeto attend clinics or rising stress among mothers. The exact causes need to be found and thesituation remedied. A concurrent Health Sector report being jointly prepared by Mauritian andBank staff is dealing in depth with this issue. In the cases of child care, household chores andfamily planning, there appears to be insufficient awareness among target users about servicesavailable. A stronger effort is warranted to raise awareness, including greater decentralization tobring and counseling to the local level.

xxxxii. Another issue is workplace comfort and safety. Action to strengthen factory inspectionand maintain required health and safety standards would alleviate some of the stress of industrialwork. Such gains are not only socially fair, they are also necessary for the higher productivitycentral to Mauritius's development strategy of the twenty-first century.

Chapter 1: Introduction 1

1. INTRODUCTION

1.1 Mauritius's policy makers are currently gearing up for another round of rapid growth that,they project, should take their country into the upper ranks of the middle income group early inthe next century. Their confidence is justified by the achievements of the first phase. Over a spanof some 25 years, real growth averaged 6 percent per annum, leading to a near four-fold increasein real per capita income; the labor-based expansion of output eliminated unemployment; andeffective distributional policies have all but eradicated absolute poverty.

1.2 Mauritians have turned their thoughts to a second round of growth and development, inpart, because the first round has about run its course. The past success was based on importantamounts of foreign investment that was attracted by the country's political and social stability; itsabundant and literate labor; and preferential access to the EU and US markets for its sugar andtextile exports. Some of these conditions have shifted as a result of domestic structural changeand emerging international market trends, leading to a need to adapt the growth strategy.

1.3 On the home front labor shortage resulting from virtual full employment since 1988, hasbecome a constraint on the expansion of output and has brought about growing wage pressureand gradual erosion of the country's labor-based competitive advantage. Meanwhile, insufficienttechnological capability to compensate for disappearing labor-cost advantage has put pressure onenterprises. Finally, there is growing social stress as a result of rapid growth, and strain on socialmaintenance programs. Externally, there is greater uncertainty about market prospects for sugarand textiles in the post-Uruguay Round era and growing competition from new low-cost textileproducers.

1.4 Much internal reflection has taken place on the conditions for sustained rapid growth.Lately, the reflection has focused on ways to respond to the above constraints. Committees andindividuals in the public, private and academic sectors have carried out studies on specific issues,and seminars have been held to debate the conclusions of the studies and their proposals. TheBank has collaborated with the Mauritians in this endeavor. Having produced several sectoralstudies recently, the Bank and Mauritius have decided to use the occasion of the preparation ofthis Country Economic Memorandum (CEM) to jointly develop a comprehensive medium-termagenda on the issues.

1.5 In line with the priorities outlined in the National Development Plan 1992-94, theemphasis would be on the following areas: macroeconomic environment; the incentive structure;factor markets; technological capacity; and further poverty alleviation and social equity. Furtherpoverty alleviation and social equity have particular importance in Mauritius where "socialharmony in diversity" was a both a contributor to and beneficiary of the past success. Theauthorities are determined to maintain the synergy as the focus shifts to making the socialmaintenance programs more efficient and deploying special efforts to promote equity in access toopportunities for building income-earning assets.

Mauritius: Country Economic Memorandum 2

1.6 The CEM follows three sectoral studies dealing with, respectively, the financial sector(Financial Sector Review, 1992), trade policy (Toward the 21st Century, 1993), and technologystrategy (Technology Strategy for Competitiveness, 1993) and is in parallel with other analyticalefforts in a Health Sector Review and in the context of the preparation of a higher educationproject. It was decided, therefore, to give it a strategic focus centered on broad labor market andhuman resource issues, which have received limited Bank analysis to date, while updating theagenda in other areas as necessary to achieve the appropriate coherence.

1.7 Accordingly, the report is structured as follows. Chapter 2 reviews recent economicdevelopments and the constraints. Chapter 3 sets forth a long-term vision and the potential toachieve it. It also reviews the record of the High-Performing Asian Economies (HPAEs) and itsrelevance for Mauritius. Putting the challenge facing Mauritius together with the lessons of theHPAE experience, Chapters 4-9 set out a medium-term policy agenda consistent with theMauritian vision.


2. RECENT ECONOMIC DEVELOPMENTS ANDCONSTRAINTS

Economic Policies and Performance durin2 1989-93

2.1 The period 1988-89 marked for Mauritius the end of rapid, labor-based growth and thebeginning of the transition to what the authorities envisage would be a second round of equallystrong growth based on productivity increase. As reflected in Table 1, during 1989-93 theeconomy had slowed down (average growth of 5.9 percent compared with 7.5 percent over thepreceding five years); efficiency of investment declined (incremental capital-output ratio of 5compared with 3 earlier); inflation had risen markedly (average of 13.1 percent compared with 3.4percent earlier); the financial position of the government had deteriorated (fiscal deficit of 3.2percent of GDP as against 1. I percent previously); the external account deficit widened (averageof 4.5 percent of GDP compared with 1.7 percent earlier); and the real exchange rate hadappreciated (average real effective exchange rose by 9 percent over the level of five years earlier).These conditions led policy makers to reflect on policies that would be required in the futurecharacterized by labor shortage, wage pressure and stiffer competition, especially in the worldtextile markets.

2.2 The authorities responded energetically, focusing macroeconomic policy on curbing theboost to aggregate demand, restoring price stability and arresting the loss of competitiveness. Atthe same time, they began reforming the financial system and fostering the growth of a market forthe supply and use of long-term savings. Beginning in 1989, fiscal policy was tightened, includinglimiting capital expenditure to the phased development of critical infrastructure and progressivereduction of subsidies. As a result, the fiscal deficit averaged 2 percent of GDP during 1990-93.The deficit was financed by project-related external financing and proceeds of bonds sold to thepublic, limiting recourse to bank financing. Monetary policy became more prudent and indirectmeans of monetary control were instituted. Open market operations began in November 1991with the first issue of bills; credit ceilings were abolished -- partially at first in 1992/93 andcompletely beginning with the 1993/94 budget, and interest rates were liberalized. In addition,selected trade policy changes were introduced to strengthen the tradable sector, including the fullliberalization of the external current account in 1992.

2.3 After 1989, while the reduced energy of the main growth sources remained evident, thefinancial situation improved steadily, illustrating the government's ability to influence the relevantaggregates. Real growth averaged 5.5 percent, still robust, but clearly lower than in the precedingfour years when it averaged 7 percent. While drought-related falls in sugar output in 1989 and1991 were an important factor, the dual impacts of the prolonged recession in Europe and thedeclining international competitiveness of Mauritian exports were primarily responsible for theslowdown. With the improvement in the budgetary performance after 1991, the fiscal stimulus tomonetary expansion lessened, leading to a reduction in the growth of monetary aggregates.Coupled a year later with a decline in international reserves, this influence kept the quarterly


increase in broad money after December 1991 at around 15 percent, compared with some 20percent during 1990-91, even as credit to the private sector rose at a quarterly average of above22 percent after December 1992.

Table 1. Mauritius- Selected Economic Indicators, 1984-93

Indicators 1984-88 1989-90 1991-92 1993

GDP growth (%) 7.5 5.9 6.0 5.5Gross Investment/GDP (%) 24.5 30.4 28.3 30.5Gross National Savings/GDP (%) 22.8 26.2 27.8 27.7

CPI Inflation (:%) 3.4 13.1 5..8 10.5Real Exchange Rate (% annual 5.2 0.8 0.4 -3.8change)Labor Productivity (% annual change) -3.5 6.1 6.9 9.2

External Current Account/GDP (%) -1.7 -5.2 -0.5 -4.2

Fiscal DeficitlGDP (%/0) -4.2 -2.6 -2.4 -2.3

Change in % over start of periodM2 (%) 27.8 19.2 20.7 13.6Net Foreign Assets ( %/6) 21.1 58.3 13.4 -1.7Net Domestic Credit (%) 10.4 15.2 14.1 18.0o/w Net Claims on Government (%) -2.2 4.4 5.2 3.8o/w Claims on Private Sector (%) 15.4 10.6 8.8 14.2

Source: Mauritius - Central Statistical Office, MEPD; Staff Computations

2.4 As a result of the restraint in aggregate demand, inflation was brought downprogressively, and it stood at 4.5 percent by 1992. The balance of payments improved over 1991-92 in keeping with the reduced aggregate demand pressure. The current account deficit-GDPratio fell from 7.4 percent in 1990 to less than 1 percent over 1991-92. The overall balanceweakened somewhat in 1992, but this was due to higher outflows on capital account reflectingmainly prepayments of some debts to take advantage of international currency movements.

2.5 The authorities were successful in arresting the macroeconomic slippage that emerged in1989-90. They must now address structural constraints to rapid growth, including labor shortageand the shift in Mauritius's traditional markets. They have also to address rigidities in and the


rising cost of the social security and pension system and alleviate social stress associated withrapid modernization. At the same time, they would need to continue efforts on laying additionalbasis for the stronger overall performance by modernizing the financial system for more efficientservices domestically and as an export item, and developing the capital market to reduceenterprises' dependence on debt financing. These challenges are reviewed next, then comparedand contrasted with the experience of the HPAEs, and later used as the basis for the medium-termstrategic and policy agenda.

Future Challenges

2.6 While individual core areas can be isolated for analytical presentation, in reality many ofthe issues are intertwined. Sound macroeconomic policies are necessary for an environmentfavorable to savings, investment and non-inflationary growth. Efficient factor markets are key inallocating productive resources to their best uses, including labor that is now in short supply andwhose pricing has contributed to the loss of competitiveness in some sectors and real exchangerate appreciation. Similarly, action on the emerging social stress would be a necessarycomplement to measures to improve productivity through upgrading technology and skills.Action to preserve social cohesion would include effective use of social assistance and pensions.Apart from aiding labor market flexibility, these would also be reflected in improved publicexpenditures and, ultimately, macroeconomic policy. These inter-relations notwithstanding, someof the core challenges are isolated for detailed examination.

2.7 Given the heavy dependence of the economy on labor-intensive industries, the shortage oflabor is the primary constraint on future growth. Following the attainment of virtual fullemployment in 1988, the level of employment has stagnated overall, and declined by about Ipercent annually in the EPZ. One way to see the challenge is in terms of its implications -- theeffect of the limited supply of labor as gauged from labor's contribution to past growth. The otherside of the challenge is what it would entail to overcome its effects. This latter consideration putsthe spotlight on more efficient allocation of the available supply through market flexibility andincreased productivity of workers through upgrading equipment, technology and human skills.This assessment can be made in a quantitative growth framework for decomposing growthaccording to sources.


Box 1. Total Factor Productivity Estimates.

Following the approaches used recently in the development literature, we specify the aggregate productionfunction of the Mauritian economy as:

Q = Af(K,L,H)

where Q is output, A is total factor productivity, K is a measure of physical capital services, L is a measure of laborservices in natural units, and H is a measure of human capital. Physical capital is measured in constant price termsand comes from Nehru and Dhareshwar (1993), while human capital is measured as educational attainment --here, mean secondary school years of the working age population -- and comes from Nehru, Swanson and Dubey(1993). 1

Under the appropriate (constant returns to scale) conditions, the parameters of the production function canbe estimated in place of the income shares (S) of the factors: SK for physical capital, SL for labor and SH forhuman capital. Table 2 below presents the results, with international comparison.

Table 2: Sources of Growth Estimates - Mauritius and Comparators.

Obs. SK (t-stat) SL (t-stat) SH (t-stat)Mauritius (1972-87) 16 0. 088 2.638 0.315 3.570 0.597 9.161Full Sample 2 2,093 0.178 10.895 0.669 6.411 0.154 1.490High Income Econ. 2 460 0.399 10.237 0.332 0.679 0.269 1.476

1/ Nehru, V. and A. Dhareshwar, 1993: 'A New Database on Capital Stock: Sources, Methodology, andResults,"RevistaAnalisi de Economico, and Nehru, V. E. Swanson and A. Dubey, 1994 "A New Database onHuman Capital Stock: Sources, Methodology, and Results, Journal ofDevelopment Economics. Results availablein STARS electronic database.2/ Cross-country results for 1960-90 reported in World Bank, East Asian Miracle, 1993, p. 64.

2.8 According to our estimates, over the period 1972-87, labor and human capital accountedfor the bulk of the growth in GDP. One surprise is the rather low elasticity of output with respectto capital. This is probably a reflection of the overwhelming importance of labor in the operationsof both the sugar and textile industries through 1987. The capital deepening believed to havetaken place in the industrial sector since the onset of virtual full employment is too recent to bereflected in these estimates. Our results show that total factor productivity (TFP) growth wasinsignificant throughout the period -- at 0.00018. It was not as good as the average in LatinAmerica but better than the average for sub-Saharan Africa (cf 0.1274 for Latin America and -0.9978 for sub-Saharan Africa during 1960-90, reported in the East Asian Miracle study). TheMauritian results indicate that, unless capital deepening and technical efficiency rise sufficiently inthe future, growth could drop off rapidly owing to the shortage of labor.


2.9 A second challenge arises from declining international competitiveness of Mauritianproducts. While in general, international competitiveness of the economy has been identifiedwith the strength of the country's comparative advantage, the immediately palpable concept ofprice competitiveness in a price-taker economy like Mauritius is a question of how domesticenterprises measure against international competitors given the relative levels of the cost ofproduction, productivity and the real effective exchange rate. Since 1989, with wage pressureand higher domestic inflation, Mauritius has been losing ground on this latter score, particularly inindustry where the (foreign exchange) labor cost index has risen faster than productivity.

Table 3: Mauritius: Employment, Labor Cost and Productivity in Manufacturing(Annual Percent Change, Indices)

1986 1987 1988 1989 1990 1991 1992 1993

Employment 27.0 15.3 3.3 2.1 0.2 0.7 1.4 -3.1Output 23.1 19.2 7.8 5.7 8.7 5.3 5.7 6.8LaborProd. -3.1 3.4 4.4 3.5 8.5 4.6 9.1 9.2FX Unit Labor Cost 9.7 -3.6 10.4 7.2 8.4 8.8 8.5 9.8

Memorandum ItemREER (1980=100) 115.2 125.7 129.2 129.3 130.1 131.9 132.4 127.4TOT(1980=100) 90.8 96.2 92.9 97.1 95.6 94.7 96.0 94.9

REER is Multilateral Real Effective Exchange Rate. Exchange Rate is defined as domesticcurrency/foreign currency. Increases in the index show relative real appreciation and decreases indicaterelative real depreciation. FX denotes foreign exchange; and TOT is Terms of Trade.Source: Mauritius - CSO, MEPD: Industrial Statistical Digest; IMF and Bank Staff computations.

2.10 During the period 1989-93, manufacturing output rose at an annual average rate of 6.2percent, compared with 16.8 percent in the preceding four-year period, apparently confirming thetrend towards a leveling off in the strength of the sector (See Table 3). At the same time,employment growth showed a sharper decline, going down from 19.8 percent during 1985-88 toan average of -0.4 percent during 1989-93. Taken together, these two indices indicate that laborproductivity, measured as physical output per worker, increased during 1989-93 by about 7percent per year, compared to an average decline of 1.9 percent per annum over the precedingfour years.

2.11 Over the period, 1989-93, the total wage index in foreign exchange terms rose by anaverage of 12.8 percent per annum, compared with an average of 22.7 percent annually during1985-88. This would suggest, when measured against employment and relative to the outputindex, that the unit labor cost index in foreign exchange terms rose faster during 1989-93 than itdid during the preceding four years (8.5 percent as against 5.5 percent) and rose faster than


productivity. In the process, the return on investment in manufacturing industry fell during 1989-93. This is a measure of the loss of cost-competitiveness. These facts illustrate a challenge thatcalls for a strategy and policies to influence the direction of several variables, including factorsupply, technical production efficiency, and market conditions influencing returns per unit ofoutput.

2.12 A third challenge derives from future stiffer competition in the world sugar and textilemarkets. Under the Uruguay Round agreements, agriculture and textiles will be fully integratedinto the multilateral trade system under more competitive conditions. Although further out in thefuture by a decade or more, the agreements would also extend GATT rules to services andintellectual property rights.

2.13 For Mauritius, the immediate consequences of stiffer competition are less severe for sugarthan for textiles since the Uruguay Round agreements protect the existing quotas for both the EUand US markets. In the case of sugar, a separate Protocol annexed to the Lome Agreementprotects the current quota (and that of all ACP exporters) at zero tariff and for an indefiniteperiod. .Beyond market access (quotas), other changes called for are in tariff reduction, anddomestic producer support and export subsidies. Among these, probable reductions in subsidiesto sugar beet producers is the change most likely to affect Mauritius, through repercussions onthe guaranteed price for cane sugar. (See Box 2). Most industry analysts foresee a modestreduction in the guaranteed price equivalent to about 10-15 percent over six years. However,Mauritius would be insulated to some extent from the price decline on account of its specialsugars which, for the year 1993-94, made up 12 percent of its total sugar exports.

2.14 In the case of textiles, the industrial-country quotas (the so-called derogations to GATTprinciples) are expected to disappear with the dismantling of MFA IV. The result would be thecreation of a freer and more competitive environment, with greater access to industrial-countrymarkets for developing-country producers whose exports have hitherto been limited by bilateralquotas. This situation is likely to further pressure Mauritius' competitive position, given theemergence on the world market of new low-cost producers. When the markets are freed,Mauritius's EU market share may contract. By the same token, its access to the US market wouldbe less restricted. The challenge here boils down to how to defend and possibly increase the EUmarket share and also sell more to a freer US market.

Mauritius. Country Economic Memorandum 9

Box 2. Mauritius and the Uruguay Round Accords.

SUGAR The implications for sugar derive from the general agricultural sector provisions regarding (i) access;(ii) tariff reduction; (iii) domestic support; and (iv) export subsidies. In 1994, access for all African, Caribbean,and Pacific (ACP) sugar (1.305 million tons) represent 11-12 percent of EU consumption. The agreements requireguaranteed mninimum access for others where current access is less than 3 percent. While on the basis of thiscriterion, the ACP quotas would be safe, a separate decision annexed to the agreements protects the current accessat zero-tariff.

Non-tariff barriers are to be replaced by tariffs and tariffs are to be reduced by 36 percent overall,subject to a minimum of 15 percent per commodity. The rate agreed for sugar is 20 percent. In line with this, thevariable import levy (which operates as a non-tariff barrier) will be converted as of July 1, 1995 to a fixed tariff of524 ECU/ton, and will be reduced at the rate of 3.33 percent per year to reach 419 ECU/ton by the year 2000. Atthe end of the period, the reduced tariff would be (at current ECU = $1.35) equivalent to 25.3 US cents/lb. Withdomestic support price at about ECU 465/ton (US 28 cents/lb), the reduction would not be enough to causepenetration of the market by non-ACP producers.

Domestic support, as calculated by Total Aggregate Measurement Support (TAMS), is to be reduced by20 percent from the level of the base 1986-88 period, over the implementation period. There need not be areduction for the price of sugar as agreements in respect of other commodities have satisfied the 20 percentrequirement. Nevertheless, there may be a reduction for budgetary reasons and to counter switch-over effects. Thebest guess in this respect is 10-15 percent by the year 2000. That would bring the current (1994) price of whitesugar from ECU 523.33/ton (32.1 US cents/lb) to ECU 465/ton (or 28.5 US cents/lb).

Export subsidies are to be reduced by 36 percent in value and 21 percent in volume from the base period1986-90. This could reduce subsidized exports of EU sugar by 57,000 tons per year through the year 2000.Reductions in the value of subsidies would have the effect of raising world prices.

In sum, Mauritius' quota is protected; tariff reductions are unlikely by themselves to bring new suppliersonto the EU or US market; the EU market negotiated price could be reduced by a modest amount in the mediumterm for budgetary reasons; and reduction of subsidies to EU exporters would have the effect of removinginefficient producers from the market and, therefore, raise world prices over the long term.

TEXTILES. Restrictions on trade in textile and clothing under the Multifiber Arrangement (MFA)will be phasedout gradually and heavily loaded towards the end of the ten-year transition period. These products will be broughtunder GATT multilateral disciplines in four phases based on 1990 volume of imports: 16 percent upon entry intoforce of the World Trade Organization (July 1, 1995); at least a further 11 percent after the third year; at least afurther 18 percent after the seventh year; and the remaining 49 percent at the end of the 10-year period. Eachphase-out will encompass products (chosen by the restricting country) from four groups -- tops and yams, fabrics,made-up textiles, and clothing. Outstanding quota restrictions will be expanded by the prevailing quota growthrate plus 16 percent annually in the first 3 years, by 25 percent in the subsequent 4 years, and by 27 percent in thefinal three years. Swing, carryover, and carry forward provisions will continue to apply as they do under the MFA.As these agreements go into place, more developing country producers will be able to compete with Mauritius inthe EU and US markets.

Source: Various agreements; Bank Staff Analysis.


3. LONG-TERM VISION AND POTENTIAL

Long-term Vision and Medium-Term Development Objectives

The Vision

3.1 Mauritians are at work on a long-term vision for their country. Preliminary indications arethat, in the economic sphere, the vision is to quadruple real per capita income within the nextgeneration, eliminate absolute poverty and further reduce inequality. This would put Mauritius inthe upper range of the upper-middle income group of countries -- a shade above the levelsattained today by Korea, Greece and Portugal. This vision requires preparation for the structuralchange that would bring it about as well as for the capacity to manage it when attained. Giventhe country's location, limited natural resource base and the current stage of development, theincome growth envisioned requires a shift of the productive structure into goods and serviceswhose production is not handicapped by limited land space nor their international exchangehampered by volume or distance. Along with this change, the role of agriculture in overallproduction will decline, the population will become more urbanized and the structure of domesticconsumption will shift towards goods and services of a richer society. Among the key attributesfor achieving the goals are a policy framework conducive to continual adjustment in all markets;high quality human resource capable of seizing opportunities in global markets; and programs thatensure social and environmental sustainability of growth.

Objectives and Strategy

3.2 Future growth of the order envisaged is expected to come in part from greater efficiencyin the traditional growth sources -- sugar, textiles, and tourism, principally -- and in part from thenew sources such as new manufactures, non-sugar agriculture, and regional financial and maritimeservices. In agriculture, increasing flexibility in factor markets would raise efficiency within theoptimal sugar output level (650,000 tons); continued derocking to expand cultivable land, andbetter incentive policies toward non-sugar agriculture are expected to support diversification --all giving rise to an expected annual average growth rate of 3 percent. In industry, the shift fromfabrics to high quality apparel and non-textile manufactures is expected to permit the sector tosustain its recent growth rate of 7 percent. Where services are concerned, the efforts to developtourist markets in Australasia and make Mauritius an Indian Ocean hub for financial and maritimeservices are expected to raise the sectoral growth rate from 7 percent during 1990-93 to anaverage of 9-10 percent over the medium term.

3.3 Among the above sources of growth, tourism deserves particular attention with respect tothe strategy for its future development. This is because its survival is conditioned by how well itrespects the constraints imposed by the environment (natural as well as man-made) and the degree


of social tolerance its patrons experience. The faster-than-programmed growth in tourist arrivals(the number of arrivals of some 400,000 in 1994 has already reached the ceiling of 400,000 byyear 2000 set by the 1988 Tourism White paper); the significant growth of lower-scale informaltourist lodgings contrary to stated policy; and the increasing environmental and social concernsvoiced by various segments of the society -- all support the need for a sharpened strategy for thissector. Such a strategy would have to address with issues of, inter alia, capacity creation andutilization and, hence, the supply of the Mauritian tourism product; market demand and itsmanagement including air access policy (assuming some market power); and the roles of publicregulatory agencies and industry coordinating institutions.

3.4 Various recent studies, including those undertaken for the Mauritius Vision 2020, providematerial for setting the required strategy. As such, this report makes only one specificrecommendation towards the strategy. Among the issues, capacity (as it affects space) has anoverarching importance for Mauritius as an island economy. In light of this, current capacityutilization (average room occupancy around 66 percent) and the increased availability of lower-quality accommodation both argue for a willingness to err on the side of caution when it comes tosetting limits on additional construction.

3.5 The Mauritian authorities expect the right overall strategy to lead to a new path offinancially and environmentally sustainable growth whose benefits continue to be equitably sharedamong the population. As reflected in the medium-term (1992-94) National Development Plan,the objective is to attain a real GNP per capita growth of 5 percent annually through the year1994 and 6 percent thereafter. Such a performance would double real per capita income in justover a decade. In order to achieve these medium-term objectives and move on to continuing rapidgrowth in the long term, Mauritius's development strategy can draw on the experience of theHigh-Performing Asian Economies (HPAEs), with regard to the key ingredients of their success --particularly human resource development, efficient resource allocation, and openness to moderntechnology.

East Asian Experience and Relevance for Mauritius

3.6 Lessons from the HPAEs. The development record of the HPAEs contains some lessonsfor a country like Mauritius that aspires to emulate that record. Rapid growth in the HPAEs hasbeen attributed to the countries' political stability and other factors including high levels ofinvestment in human and physical capital, efficient allocation of resources, and exceptionally highlevels of productivity. Empirical studies of the experience have disaggregated the growth intothree sources namely, accumulation (in physical investment and human assets), productivity, andthe unexplainable part considered "miraculous" and attributable to a regional contagion effectamong others. The appropriate approach to benefitting from the lessons would be to see how faraway Mauritius is from attaining those causative characteristics that are replicable (i.e. with theexception of the contagion effect) and what it would take to catch up to the requisite levels.


3.7 The quality of public policy in the HPAEs was a strong contributor to their superiorperformance in terms of getting their fundamentals "right": stable macroeconomy, high humancapital, effective financial systems, limited price distortions and openness to international marketsand technology. It also entailed the judicious use of selected interventions: investment incentivesand, in some cases, directed and/or subsidized credit -- both for the minimum duration and underthe conditions required for them to work. Macroeconomic stability was maintained throughprudent fiscal policy, monetary and debt policies which, together with prompt adjustments inexchange rates when required, made for a low-inflation environment with limited price distortions.Strategic policy interventions to direct resources into particular sectors were used with somesuccess in heavy industries in Korea, but when proved unsustainable they were dismantled.

3.8 One distinctive aspect of public policy in the HPAEs is their achievement of a "winningmix" between fundamentals and interventions as evidenced most strongly by their promotion ofmanufactured exports. The [PAE approach has been exemplary. Although all of them, exceptHong Kong, passed through an import substitution phase, with high and variable protection, theseperiods ended relatively early giving way to strong export promotion. Among them, Hong Kongand Singapore adopted trade regimes that were close to free trade; Japan, Taiwan, China andKorea adopted mixed regimes that were largely free for export industries. In the 1980s Thailandand Malaysia adopted a wide variety of export incentives, while gradually reducing protection.Thus, in general, East Asia's sectoral policies were more outward-oriented and supportive ofexports than in other developing economies. Among other things, this policy orientationfacilitated their access to international best practice technology that has been crucial to theirproductivity gains.

3.9 The HPAEs have outperformed most countries in the area of investment, with aninvestment-GDP ratio that averaged more than 25 percent during 1960-90 and generally increasedwith their income levels. More importantly, a large share of their investment -- as much as 60percent or better -- occurred in the private sector. Public investment was sustained andappropriately directed at providing critical infrastructure. During 1980-87, public investmentactually moved counter cyclically with private investment. A large share of the investment wasfinanced from domestic savings. Indeed, towards the end of the 1980s, the HPAEs became netexporters of capital. Table 4 below presents some selected economic indicators for Mauritius andfour HPAEs.


Table 4: Mauritius and Comparators - Selected Economic Indicators, 1983-92

Period AverageGDPGR GNSR INVR (%) PRINVR (%) TFP Growth

(%) (%)

Mauritius 5.1 24.8 24.7 19.7 0.0002Hong Kong 5.4 31.4 27.8 3.6470Japan 3.5 32.6 29.7 26.4 3.4776Korea 8.1 33.1 32.2 27.6 3.1021Singapore 4.9 43.1 41.5 31.2 1.1911

Notes: GDPGR: Gross domestic product per capita growth rate; GNSR: Gross national saving rate relativeto GDP (1983-93); INVR: Gross domestic investment relative to GDP; PRINVR: Private investmentrelative to GDP (1983-91 for Mauritius, Korea, Singapore, and 1983-90 for Japan); TFP: Total FactorProductivity.Sources: World Bank - World Tables, 1994; World Bank - East Asian Miracle, 1993, op. cit.

3.10 The exceptional performance of the HIPAEs also benefited from above-average levels ofhuman capital. These economies achieved universal primary education by the mid-I 960s, and themore successful ones among them (Singapore, Korea and Hong Kong) had raised the secondaryeducation enrollment ratio past 70 percent by 1987. These achievements were predominantly dueto public financing of education. Tertiary education was also promoted, with beneficiaries theprimary source of financing.

3.11 The HPAEs also stand out because of the high levels of productivity they achieved.Various studies have shown that the above-average productivity in these countries is due to theirgreater efficiency in allocation of resources and higher ability at adopting and masteringinternational best practice technologies. The impact of technology on output takes two forms. Inthe first form, countries at an earlier stage of development are able to increase productivity byadopting the best in existing technology. This movement to the technology frontier is termedtechnical efficiency. In the second form, more advanced countries already at international bestpractice are able to increase productivity by innovating and moving the technology frontieroutward. This is termed technological progress. The experience of the HPAEs has been analyzedin terms of technical efficiency.

3.12 Cross-economy studies of trends in total factor productivity during 1960-89 show that the3

HPAEs had above-average TFP growth. Among the sample of fifty-nine developing economiesstudied, these five HPAEs featured in the top decile in terms of TFP contribution to growth.They fall into two sub-groups, however. During the period in question, the first sub-group

3This part of the report draws substantially on The East Asian Miracle, op. cit.. pp. 60-70.


comprising Japan, Korea, China, Hong Kong and Taiwan, China, derived more than 33 percent oftheir growth from TFP growth from catching-up to international technology. Their growth hasbeen called productivity-driven. The second sub-group consisting of Indonesia, Malaysia andSingapore derived 10-20 percent of their growth from TFP, a level more typical of low-to-middleincome countries. This latter sub-group derived more of their growth from investment than TFPand have been called investment-driven. As shown in Table 4, Korea and Singapore were highinvestment countries.

3.13 The HPAE experience shows that while TFP growth from technical efficiency isimportant, the pace at which developing countries move towards -- or catch-up with -- theinternational technology frontier is also critical. The rate of progress in terms of catching-up tointernational practice varied among the HPAEs. In the productivity-driven economies, annualincrease in technical efficiency was 2 percent in Hong Kong; 1 percent in Japan; 0.8 percent inTaiwan, China; and 0. 1 percent in Thailand. In the investment-driven ones, the economies justmanaged to keep pace with international best practice (Korea's annual change of -0.2 percent) oractually slipped back (Singapore with an annual change of -3.5 percent). This compares with afalling behind in the average case in Latin America (annual increase of -1.4 percent) and sub-Saharan Africa (annual change of -3.5 percent). It reveals an interesting phenomenon: owing todurability of capital, above average investment in fixed assets may carry with it the risk oftechnological stagnation which it would take exceptional efforts to avoid.

3.14 The HPAEs also maintained unusually high levels of social equity during their rapidgrowth. In contrast with the experience of other economies, growth in the HPAEs wasaccompanied by significant poverty alleviation and declining concentration of incomes. Duringthe decade of 1972-82, Indonesia and Singapore reduced by 60-70 percent the proportion of theirpopulations living below the poverty line. Similar improvements occurred in Malaysia andThailand over slightly longer periods. These changes were translated into higher living standardsfor the majority of the populations. For example, life expectancy rose by 20-30 percent over threedecades, and in most of the countries access to vital amenities such as safe water and sanitationfacilities was assured for all the people.

Relevance for Mauritius

3.15 As Mauritius seeks to launch another round of fast growth under more challengingconditions than in the past, there is need for increased efficiency all around. Public policy wouldhave to be more proficient to secure the policy fundamentals and also achieve the winning mixbetween these and selected interventions. In areas such as macroeconomic stability and socialequity, Mauritius is well on its way towards attaining the HPAE level of performance and simplyneeds to stay the course charted over the past two decades. In the macroeconomic sphere, thisincludes setting policies in such a way as to achieve the increased savings and investment required


to meet the growth objectives of the country's long-term vision, as well as to keep Mauritianexports competitive internationally. With regard to social equity, while the general thrust ofstrategy should continue to promote equity, intensified efforts will need to be deployed onreduction of residual poverty and attenuating stress from modernization. A similar situationobtains with respect to openness to foreign technology, although here there is an urgent need forredoubled efforts to increase the capacity of acquisition, diffusion and adaptation in order to makeTFP the strongest contributor to future growth.

3.16 In other areas such as total factor productivity and human capital, and the flexible use ofstrategic intervention to modify market signals, the experience of the HPAEs holds additionallessons for Mauritius. As seen above, TFP did not make a significant contribution to pastgrowth. With the exhaustion of the pool of underemployed labor, future growth will have todepend on a combination of: (i) redeployed pockets of labor reserves in the sugar industry and thepublic sector to areas experiencing shortages, (ii) higher levels of investment; and (iii) an increasein TFP.

3.17 While all these sources of additional growth should be harnessed, TFP increases wouldmake the most durable improvement in growth performance. In the case of redeployment ofredundant labor, this could take time and its effectiveness would depend on the transferability ofskills. As to investment, a reasonably high rate has been achieved but its efficiency has beendeclining. During 1984-86, the investment/GDP ratio averaged 22 percent and the real GDPgrowth rate was 7 percent, implying an incremental-capital-output ratio (ICOR) of 3.0. Theinvestment/GDP ratio rose to an average of 30-31 percent over the period 1987-89 and hasaveraged about 29 percent since then. Compared with average annual real GDP growth since1987 of 5.7 percent, this means an ICOR of 5.3, which is an evidence of reduced productivity ofcapital. Both these considerations reinforce the case for increased TFP. As explained later (SeeChapter 7 on Technology), TFP growth in Mauritius would come from technical efficiency --movement to international best practice. This, in turn, requires reinforcement of human capitaland the upgrading of technological capacity.

3.18 In the area of human capital, Mauritius would need to make a major effort to raisequantity and quality if it were to follow in the footsteps of the HPAEs. Mauritius has achieveduniversal primary education (106 percent enrollment) but without the requisite quality. In bothsecondary and higher education, the enrollment rates are low and there is much more to do withregard to quality. The high failure rates at the end of the primary school career (about 41 percent)indicates great internal inefficiency and/or low quality of the system. The current secondaryenrollment rate of 56 percent is lower than the average attained by the HPAEs in the late 1980s(70 percent or better by 1989, see Table 5). Mauritius's low score reflects the combined effect ofinadequacy of parallel streams and wastage over the years (see paras. 7.9-7.10; 9.19, 9.18). Theexperience of Hong Kong and Singapore shows that the secondary enrollment ratio does not riserapidly even under favorable conditions; in Hong Kong it rose by 21 percentage points in thirteen


years and in Singapore by 17 points in 14 years. These numbers indicate that if a similar behaviorwere to obtain in Mauritius, the country could expect to raise the enrollment ratio to about 70percent within a decade of strong effort to emulate HPAE standards.

Table 5: Mauritius and Comparators-Educational Attainment

Primary Secondary 1989 SecondaryLevels

Mauritius 1992 106 56Hong Kong 1976 114 52 73Japan 1972 99 91 96Korea 1987 101 87 87Singapore 1975 110 52 69*/ Comparison of levels at similar stages of development (at Mauritius s 1992 per capitaincome).Source: World Bank, World Tables 1993.

3.19 There is an even bigger challenge with internal efficiency and its consequence in terms oflow input into high education. Out of the limited numbers, some 47 percent fail to make therequired grade, implying a still smaller pool of workers with the general education which serves asfoundation for the assimilation of advanced specialist skills. The enrollment rate in highereducation is 1-2 percent (excluding those abroad), compared with 6-12 percent in the HPAEs.This level of human capital which imparts the ability for conceptual work is itself affected by thequantity and quality deficiencies of the lower levels. Its weaknesses symbolize in a sense thedistance that Mauritius has to travel in order to catch up to the HPAE standard of the late 1980s.


Box 3: Cases and Conditions of Successful Strategic Intervention

While the interpretation made here of the HPAE experience emphasizes limited policy distortions in theforeign trade regime and domestic factor markets, it is also true that strategic intervention has been used onoccasion with some success. The best known instance is the use of repressed interest rates and directed credit.All the HPAEs controlled interest rates on deposits and loans at one time or another and used government-directedschemes to indicate preferred sectors to bankers and investors. Banks and investors then selected projects in thesesectors and offered them additional funds at commercial rates. In doing this, Japan, Korea, and Taiwan, Chinawent further than the rest. They used exports as a criterion to determine whether priority firms received credit,regardless of the market for the actual priority investment. Korea went furthest in using directed credit andsubsidized interest rates in stimulating investments in equipment. It also suffered high costs linked to thedifficulties of the heavy and chemical industries program.

Apart from the factor of a competent and impartial civil service credited with the general success of publicpolicy in the HPAEs, two other conditions were important to this relative success of the interventionist financialpolicies. First, the state of the world economy in the 1960-80s, with the possibility of closing off domestic capitalmarkets, permitted the implementation of such policies. Today, however, with the greater openness of andincreased competition in capital markets, financial repression and directed credits are now less viable options fordeveloping economies. Second, credit allocation followed export performance, enabling it to avoid encouragingwaste that comes from inward orientation. The success of directed-credit programs in raising investment is onlyhalf the story. It is important to show that such credit did not merely displace investment from other sources andthat social returns on the investment exceed private returns, justifying the targeting. Studies of this aspect revealthe importance of additional conditions. Directed credit should act as a signaling and insurance mechanism; itshould be complementary to lending from private financial institutions and result in net increase in investment;and it is most successful when directed at nontraditional borrowers.

Industrial policy, interpreted as a package of measures to spur growth through manipulation of industrialstructure, has had more of a mixed record. All the HPAEs, except Hong Kong, have used industrial policy in thissense, through directed credit, protection and limits on entry into specific sectors. Japan and Korea made the mostsystematic use of it, while Taiwan, China, Indonesia, Malaysia and Thailand have used it less systematically.Japanese industrial policy initially promoted sectors that faced high income-elastic demands in international tradeand exhibited economies of scale, large fixed costs the potential to learn from experience. Later on, it narrowed tospecific sectors. Korea's industrial policy promoted individual firms mainly to rectify perceived entrepreneurialand skill deficiencies, using export performance to determine how long to sustain support. Taiwan, China, usedindustrial policy in much the same way as Japan and Korea, but on a smaller scale.

As to impact, research on industrial patterns and performance in the HPAEs (Japan, Korea, Hong Kong,Taiwan, China, and Singapore -- for which the requisite data are available) raise doubts about policymakers' abilitythrough intervention to influence industrial structure and productivity. On structure, it was found that industrialgrowth was largely market conforming: the patterns and factor intensities were in line with the countries'comparative advantages. Regarding productivity, intervention did not achieve above-average rates. In all exceptJapan the TFP growth rates achieved in the promoted sectors were not significantly higher than in less-favoredactivities.


3.20 In the case of use of strategic intervention, the Mauritian record is better than that of mostdeveloping economies. However, the experiences of the HPAEs with strategic intervention showthat in preparing for renewed rapid growth, Mauritius would do well to move away frommanipulating signals in favor of presumed winners. Indonesia, and Malaysia both realized highergrowth when they turned from import substitution to a full export drive. Korea's relative successwith directed industrial policy exacted heavy costs which many countries cannot afford. InMauritius, after a period of single-minded import substitution industrialization policies in the1970s, a switch was made to an outward-oriented growth strategy based on exports promotedthrough the EPZ scheme. The growth performance over the better part of the past two decadestestify to the potency of such outward-looking policies.

3.21 The growth and development achieved over the past two decades in an environment ofdifferentiated incentive schemes is certainly impressive. But it is not improbable that the same ormore could have been achieved in an undistorted low-tax environment in which the public sectorplayed an effective facilitating but non-discriminatory role. The limited linkages between EPZactivities and those in the rest of the economy point to the effect of residual import-substitutionpolicies responsible for segmentation of the economy. Import substitution in a limited domesticmarket necessarily entails inefficiencies. Given the fact that the authorities' declared strategy is tounify the economy and have resources flow to their most economic uses, this is another areawhere taking a leaf out of the HPAE book might yield rich dividends.

3.22 How does Mauritius go about adapting its development strategy to create a productivity-driven economy over the long term, taking advantage of the lessons from the HPAE experience?This question is borne in mind in the various sections of Chapters 4-8 of the report which take upthe preconditions for a successful push to a new growth path and make proposals for a medium-term policy and action agenda. The role of public policy in creating a conducive environment andensuring macroeconomic stability is examined in Chapter 4. The subject of an adequate humanresource base as part of the effort at sharpening the technological capability is dealt with underChapter 7. The required change in strategy would call for more and better educational services.The implied shifts in public expenditure are examined in Chapter 4. Similarly, the efficiency issuesraised by the persistence of the EPZ/non-EPZ divide and the incentive framework (indirecttaxation and the operation of various investment incentive schemes) and a proposal forrationalization are taken up in detail in Chapter 5.


4. PUBLIC POLICY AND MACROECONOMIC STABILITY

Continued Growth and Sustainability as Overall Thrust

4.1 Mauritius's long-term vision is continued growth around a paradigm of development thatincorporates sustainability (financial, social and environmental) into the national objective functionearly on, rather than try to correct for defects after they occur. Further poverty alleviation andsocial equity in particular rank high among the objectives because of the authorities' desire to keep"social harmony within diversity" an essential part of the Mauritian success story. Additionally,the paradigm de-emphasizes public sector intervention and puts a premium on human resourcedevelopment towards long-term productivity growth. To achieve this vision, the authoritieswould like to see the economy evolve in a framework in which all agents recognize and work withchanging natural and competitive advantages and priorities, with a willingness to continually adaptstrategies, institutions and policies to equally changing constraints -- all of this with an abidingconcern for social equity and preservation of the environment.

4.2 With this orientation and the constraints identified above, the Mauritian authoritiesrecognize that the medium-term policy agenda must focus on: (i) continuing policies that ensuremacroeconomic stability and promote international competitiveness; (ii) reforming the incentiveframework in such a way as to forge a closer alignment with international prices and permitincreased efficiency in resource allocation; (iii) fostering greater flexibility in factor markets toenable labor and savings, in particular, to continually reallocate to their most efficient uses; (iv)strengthening technological capacity in order to raise total factor productivity; and (v) continuinggenerally equitable but efficient social policies and mitigating social stress of rapid modernization.

4.3 The remainder of the report examines the relevant issues in each of these areas and makesproposals for an agenda. Chapter 4 examines the role of the State, with emphasis on changes inpublic- and parapublic-sector management and goes on to assess the near-term macroeconomicchallenges and suggests a range of possible public policy responses. Chapter 5 takes up theincentive framework with a view to proposing an approach to the desired reform of the tax systemand reorganizing the structure of investment incentives. Chapter 6 deals with factor markets,with emphasis on the labor and financial and capital markets; the section also analyzes the pensionand social security system where flexibility and sustainability are crucial for fluidity in the labormarket and domestic resource mobilization. Chapter 7 takes up the question of technologicalcapacity. Chapter 8 treats the question of infrastructural support to the competitiveness strategy.Chapter 9 deals with poverty alleviation and social cohesion.

4.4 The role of the State is one area where the authorities seek to be more effective by makingchanges in line with the new policy orientations. As broad principles, the authorities intend to


reduce the government's role in the production and distribution of goods and services; focus itmore on facilitating private sector's conduct of these functions; and limiting other intervention toefficient action to correct for market failures including continuing social integration of thevulnerable. We consider in the remainder of this section how the government might go aboutshifting from its current posture to the new one envisaged. We do so by examining the level andstructure of public expenditures; current stance on the incentive framework for investment andproduction; and issues in the privatization of parastatal companies.

Level and Structure of Public Expenditures

4.5 The share of public expenditure to GDP has been relatively stable (at 25 percent of GDP)over the past decade, reflecting the absence of a significant shift in the size of public sectorinvolvement in the economy. There was, however, a shift in relative emphasis, with moreresources devoted to public administration and social services towards the end of the period thanat the beginning. During the two sub-periods we compare --1984/85-88/89 and 1989-90-92/93 --the share of public administration and security in overall expenditure rose from 19 percent to 22percent. The bulk of the increase was due to high employment, since the relative proportion ofwages and salaries did not increase significantly. Over the same period, the share of socialservices rose from 37 percent to 42 percent, mainly due to growing weight of social security andpensions. As a counterpart to these increases, the relative proportion of expenditure devoted toeconomic services declined from 16 percent to 12 percent. These developments indicate anemerging switch in expenditure priorities away from human capital formation and economicservices (with a significant social infrastructure component) towards public administration andsocial maintenance programs. Table 6 below shows the expenditure patterns in selected relevantareas for Mauritius and five HPAE comparators. It shows Mauritius's total expenditure ratio isat the upper end; its allocation for education is towards the lower end and declining; its relativeshare on housing and social welfare is highest; and it is below average on allocation to economicservices.


Table 6: Public Expenditure Size and AllocationMauritius and Comparators, 1980 and 1992

% of Total ExpenditureExpend/GNP Education Hous. & Welf. Econ. Services1980 1992 1980 1992 1980 1992 1980 1992

Mauritius 27.4 24.7 17.6 14.6 21.4 19.5 11.7 16.6Indonesia 23.1 19.2 8.3 9.8 1.8 2.0 40.2 29.6Malaysia 29.6 29.4 18.3 19.6 7.0 11.6 30.0 19.4Thailand 19.1 15.4 19.8 21.1 5.1 6.7 24.2 26.2Korea 17.9 17.6 17.1 16.2 7.5 12.5 15.6 16.5Singapore 20.8 22.7 14.6 22.9 7.6 11.6 30.0 19.4

Source: World Bank, World Development Report 1994

4.6 While the situation has not led to a macroeconomic crisis or obvious allocationalshortcomings (under-funded educational and health facilities and overtaxed infrastructure) thetrend ought to be reversed in order to avoid the occurrence of these problems and also havepublic sector resource use match the envisaged new role of the State. This change of directionwould entail: (i) a reduction in the size and (hence cost) of the public administration; to the extentthat this releases labor to be absorbed by areas facing shortage and also lighten up bureaucracy,this action would contribute to the achievement of some goals in the labor market and incentivestructure; (ii) greater resource input into education and health, at the primary and secondary levelswhere public sector action is critical to improve the quantity and quality of human capital; (iii)lighter investment in physical infrastructure and environmental protection, including usinginnovative approaches in association with the private sector; and (iv) restructuring socialmaintenance programs (including pensions) to make them more cost-effective and sustainable.

4.7 In the short-to-medium term, two variables of focus should be wages and transfers. Theround of wage awards begun by the Pay Research Bureau grant of 1993/94 is a shock similar tothat of 1988/89. As before, it will take stringent measures to curb the resultant boost toaggregate demand. Current transfers have been increasing mainly because of rising social securityand pension obligations. In 1988/89, these two items accounted for 11 percent of budgetaryexpenditure (or 3.0 percent of GDP). By 1992/93, their share had risen to 13 percent ofbudgetary expenditure (or 3.2 percent of GDP). Assuming unchanged policies, especially withrespect to pensions and social security, this category of expenditure could reach 14 percent ofbudgetary expenditure (or 4.5 percent of GDP) by 1998.

4.8 Our projections (Appendix E, Tables 111.3 and 111.4), assuming a prudent fiscal policystance compatible with a stable medium-term macroeconomic outlook, imply that a solutionwould be found for the problem. We posit public savings of the order of 5 percent annually over1994-98. Assuming a revenue/GDP ratio of 22 percent, and allowing 6 percent for goods and


services and interest on debt, this outlook would require that wages and transfers togetherconstitute no more than 11 percent of GDP. With wages and pension and social security outlaysat 8 percent and 3.2 percent of GDP, respectively, in 1992/93, there is a clear need for earlyaction to curb the growth in these elements of public expenditure. Assuming this were done, andtaking external financing at 0.2 percent of GDP (in line with past trends), domestic financing ofthe deficit would be about 0.4 percent -- consistent to keep inflation below 4 percent.

Greater Burden Sharing with the Private Sector

4.9 One way to reduce and refocus the role of the public sector is to make greater use of thescope for private sector delivery of some goods and services provided directly by the publicsector. Such an enhanced private sector role can be played in the provision of infrastructureservices (e.g. transport, water, power, telecommunications) as much as of purely social services(e.g. education and health), with beneficial effects in financial savings and increased economicefficiency. Currently, efforts to modernize telecommunications in the context of a Services SectorModernization Project include opening up the provision of such services to the private sector. Amodest degree of public-private cooperation exists in the production of electric power, to theextent that private producers of bagasse-based energy sell their surplus to the Central ElectricityBoard (CEB) for the national grid. The newly-launched Bagasse Energy Development Project isexpected to increase the share of privately produced electric energy. No such initiatives areunderway in the transport or water sectors. In the case of education and health, there is a longexperience of public sector burden-sharing with private producers. In 1993, 46.3 percent ofstudents and 12.6 percent of patients were catered for in private service institutions.

4.10 The past and on-going efforts can be reinforced and made more supportive of the long-term strategy of increased competitiveness and productivity-driven growth. Within the water andelectricity sectors, the question of natural monopolies is important. This makes verticalunbundling -- separating production from transmission/distribution -- an attractive approach forachieving further efficiency gains. In transport, the options of private investment and/or lease foroperation are innovative ways to solve capacity and management problems. In education andhealth sectors, increased efforts spanning the spectrum from private investment and operation topublic investment with cost recovery could be part of the new public policy.

The Parastatal Sector

4.11 The parastatal sector in Mauritius currently comprises five major enterprises (State Bankof Mauritius --SBM, Development Bank of Mauritius --DBM, Mauritius Housing Company Ltd. --MHC, State Insurance Corporation of Mauritius --SICOM, and Mauritius TELECOM), elevencompanies controlled by the umbrella State Investment Corporation (SIC) and an additional


twenty in which it participates, and other non-incorporated entities such as Development WorksCorporation (DWC), Central Electricity Board (CEB), Central Water Authority (CWA) etc.While many of the enterprises are in sound financial health, a few depend on the centralgovernment for operating subsidies (DWC) or capital transfers and occasional debt write-off(CWA, CEB), or are high-cost providers of services for which they hold monopoly (CargoHandling Corporation). In addition, the parastatal sector employs some 35,000 people, some ofwhom are possibly redundant. Improvements in financial and allocative efficiency in the parastatalsector could increase domestic savings (by strengthening public finance); release someunderemployed labor to more economic uses (through retrenchment); and improve efficiency ofresource use/raise productivity (by becoming accountable to more demanding stakeholders).

Issues in Privatization of Parastatals

4.12 In line with the current policy of decreasing government's direct involvement in economicactivity, a process of privatization of these enterprises has begun. Thus, recently one major stateenterprise -- Mauritius Telecom -- was incorporated as a state-owned company and a NationalInvestment Trust (NIT) was set up as a warehouse through which state enterprise shares could besold to the public. But there is no clear stand on privatization. It is essential that such a stand bearticulated and made known publicly and a strategy formulated in line with it. The followingparagraphs examine critical issues of accountability, governance, and regulation which should begiven attention in setting the strategy.

4.13 Accountability concerns the creation of an environment for the observance of commercialprinciples in the management of public enterprises amenable to it, with on-going recording ofprofit and loss to provide reliable data on operational and financial performance. This can beachieved fairly easily as its first requirement is merely the incorporation of public enterprises ascompanies. Later, when financial performance is satisfactory, the companies can finance most oftheir investments by the issue of bonds and reduce their direct financing links with government.

4.14 Governance relates to management responsibility towards owners. It is achieved throughthe existence of a major (strategic) shareholder who monitors the activities of management,nominates the majority of the board of directors, and serves as effective voice for shareholders,including acting to replace management when the situation requires it. At first sight, it mayappear that the case for action on this point is weak, since many of the public enterprises areperforming well financially. The idea is still worth pursuing in order to make room forimprovements and also be prepared should conditions change. The phased privatization shouldavoid the concentration of shares in a few hands. Beyond meeting this objective, there is also aneed to allow a strategic shareholder in each company to replace the ministry or SIC as a majorowner. This would avoid the devolution of full control on the management by default, and ensureresponsibility towards owners.


4.15 Regulation concerns the control of quality of service and the setting of tariffs, as exercisedcommonly by a public utility board (or separate boards for each type of service) where the utilitiesare not fully government owned. Because of its overwhelming importance in public utilities, itmust be addressed before they are privatized. The creation of a supervisory system requireslegislation, the creation of a public board or boards, and the institution of regulations, followed bynegotiations of the terms of operation and the issue of a contract or license.

4.16 In view of the foregoing, the parastatal sector restructuring strategy could be formulatedas a three-part process. Short-run actions would include: (i) incorporation of all enterprises,including those operating as public boards or departments of ministries; (ii) offer to the public(through public offerings) of minority shares in GoM- and SIC-owned companies; offer of sharesin additional companies would be on a continuous basis and in line with the absorptive capacity ofthe Stock Exchange, (iii) sale of minority holdings in companies where the government holdingsconstitute a minority and a major shareholder exists. Follow-on actions in the medium termwould comprise: (i) initiation of finance of state-owned companies with large investment needs bythe issue of their bonds to the public; (ii) creation of the legislation and the institutions requiredfor the supervision of utilities; and (iii) offer to the public of shares in GoM and SIC companies,including the auctioning of controlling interest is these companies. Long-run actions wouldinclude: (i) complete divestiture by GoM and SIC of all holdings in the enterprises, except thoseof strategic importance; and (ii) sale of public utility shares to the public, including controllinginterest.

Macroeconomic Stability

Recent Developments

4.17 Recent macroeconomic developments and known near-term challenges point up threeareas of focus for diligence in policy making over the medium term: fiscal policy (as drivenespecially by personnel and social security outlays) and its impact on aggregate demand; capitalinflows and their influence on the monetary base; and real exchange rate movements and theireffect on international competitiveness. Prudent public finance and monetary management, withfiscal deficits financed in non-inflationary ways and successful containment of the impact ofgrowing foreign assets on the monetary base will all contribute to the maintenance of stability.

Future Outlook and Policies

4.18 The increasingly important impact of foreign assets on the monetary base has to bemanaged within an overall money expansion rate that is consistent with sustainable aggregatedemand levels. During 1989-93, net foreign assets increased almost three-fold, or 24 percent


annually (Appendix E Table IV). Over the same period, domestic credit rose 2.5 times, or 19percent annually. Compared with broad money which increased at 19 percent annually, it isevident that the growth in foreign assets was a stronger contributor to the expansion of themonetary base. As the foreign asset position improves further, the management of its impact onaggregate demand in line with the projected outlook would entail further rigor in money andcredit policy.

4.19 The sustained appreciation of the real exchange rate is a source of concern, as it is notbacked by adequate productivity gains and thus erodes the price competitiveness of Mauritianexports and threatens the survival of many firms. In addition, there is another concern with theefficiency of resource allocation given the wedge between exports and import-competing productsas a result of differences in the effective (tariff- and subsidy-inclusive) exchange rates. Thisdifferential must be reduced if the goal of linkages between the EPZ and the non-EPZ sectors isto be achieved. These two objectives require active coordination of the exchange and aggregatedemand policies.

4.20 A first focus would be keeping the real exchange rate from further appreciation. A secondwould be narrowing down the differential in the real effective rate between exports and import-competing products. At the same time, the tariff- and subsidy-inclusive real exchange indiceswould have to be adjusted to prevent further divergence in the price indices facing exports andimport substitutes.

4.21 Given the linkages among the above areas, the various policies will have to be coordinatedto achieve the goal of non-inflationary growth. One way to approach this task is to set policies onthe basis of prior assessment of various options with the aid of a multisectoral quantitativeframework. A multisectoral macroeconomic model (RMSM-X) has been developed for thispurpose, and has been used in the analysis that follows. A description of the model and theprojections based on it appear in Appendix A of the report.

4.22 In our medium-term (1994-98) scenario, real GDP growth of 5-6 percent would besupported by investment averaging 29 percent of GDP, with the private sector accounting forabout 26 percent. Domestic savings would rise to an average of 26 percent, assisted in part by areduction in government consumption which enables public savings to reach 5 percent by 1997.The resource gap, which rose to 6.4 percent in 1993, would thus fall back to 3 percent by the endof the period -- a level more easily covered by the external resource transfers. Public financeswould meet refocused responsibilities reflecting the policy shift (paras. 4.4-4.5) within reducedrevenues (22 percent) and support the domestic savings objectives (24 percent).


4.23 The external current account deficit would improve from 4.2 percent of GDP in 1993 toan average of 3 percent during 1994-97 in line with the evolution of the national savings gap,

4barring any shocks. In support of this, foreign exchange rate policy would remain flexible andkeep the real exchange rate from further appreciation. Our projected outlook for 1994-98foresees net foreign assets growing at about 6 percent annually (less robust foreign sector asexports grow more slowly) and domestic credit at an average of 10 percent (deliberately morerestrictive monetary policy) mainly to finance the private sector.

4.24 Given the 21 percent increase in M2 deriving mainly from the cumulative effect of a 15percent annual increase in domestic credit during fiscal years 1993-94, it would be essential tosterilize the effect of foreign asset increases through tighter fiscal and monetary policy. Thiswould reduce monetary expansion to an average of 14 percent over 1995-98, with projectedforeign and local inflation rates of 3 percent and 6 percent, respectively. It would be important tokeep this pace of price change, so that the real effective exchange rate could be held from furtherappreciation while keeping the recent pace of change in the nominal exchange rate (a cumulativedepreciation of 30 percent over five years).

4

The effects of Cyclone Hollanda and one-off investments brought the current account deficit in 1994 close to4.2 pecent of GDP.


5. THE INCENTIVE STRUCTURE

5.1 Inefficiencies in the incentive structure arise from distortions in the tax system, especiallyindirect taxes, and in the highly differentiated investment incentive structure. The key objective inreforming the system would be to make Mauritius a low-tax economy where: (i) indirect taxes arelevied principally on consumption, avoiding the effort discouraging effect of high reliance onincome taxes; and (ii) there is sufficient neutrality in tax effects to obviate the need for specialincentives to compensate for distortions induced by the tax system.

5.2 The import tax system has some attractive features such as its reliance on ad valorem ratesmainly and its application to a base of cost plus insurance and freight. In contrast to these, it hasdeficiencies (some of which were eliminated with the reform measures announced in the 1994/95budget) -- aggregate nominal tariffs that vary widely and include extremely high rates; and highlevels of effective protection which distort resource allocation. The sales tax system also has itsstrong points -- a uniform and relatively low rate (5 percent) levied at the wholesale stage. But ithas important shortcomings as well, to the extent that it is not levied exclusively on consumption;has a narrow base owing to many exemptions including services other than designated hotels andrestaurants; and excludes retail margins from its base. The excise tax system also has its positiveelement of reasonably high rates which have not required frequent revision. They havedrawbacks, however, to the extent that they do not apply to some imports which would normallybe subject to such a tax, and contain specific rates which erode with inflation.

5.3 With the 1994/95 budget, the authorities began some of the required innovation to thesystem. This effort should be taken further and in a comprehensive manner, towards a systemthat is economically efficient and socially equitable yet capable of generating a reasonable level offiscal revenues. A reform within this perspective would make: (i) import taxes (consolidated intoa unique tariff) uniform, low and devoted exclusively to temporary protection of domesticindustry; (ii) sales taxes of value-added variety (VAT) and levied on all consumption (includingimports) and consumption only; and (iii) excise taxes applicable only to consumption itemsconsidered to be "socially undesirable" or luxur. -s.

Reforming Indirect Taxation

5.4 Where import taxes are concerned, the consolidation announced in the 1994/95 budgetwould need to be followed by a reduction in the number and level of rates and rationalizationwithin the structure to modulate effective protection as needed. The authorities could consider:(i) reducing rates to no more than five (to reduce complexity); (ii) reducing the maximum rate to30-35 percent (to keep effective protection modest); (iii) eliminate zero rates (to expand dutiablebase and limit protection levels); (iv) limit exemptions to those under international conventions


and existing contractual obligations; and, (v) most importantly, eliminate anomalies by keepingrates differentiated only as appropriate on the basis of the level of processing of the dutiable item.

5.5 The above tariff structure has the features proposed under the common external tariff(CET) structure (to be achieved by 1998) of the Initiative to Promote Cross Border Trade andInvestments in the East and Southern Africa and Indian Ocean Countries (CBI) in whichMauritius is participating. In terms of protection, it would enable a producer facing 30 percenttariff on the finished product and 5 percent on the input and producing with a value added of 50percent to enjoy 50 percent effective protection. As regards revenue impact, with effectiveadministration, the new rates would mean a modest reduction in revenue intake on the basis ofunchanged import levels. (See Appendix D for a simulation of the revenue effect).

Box 4. Issues in Indirect Tax Reform

The indirect tax reform proposed aims to achieve three broad goals: (i) limit distortion in incentivesfacing factors of production; (ii) keep industrial protection -- as measured by the effective protection of value added-- modest; and (iii) protect fiscal revenues. As broad principles towards these goals, import tariffs would bereserved for the modest level of protection desired; sales tax of value added variety levied on consumption would bethe primary source of fiscal revenues; and excise taxation would be reserved mainly for limiting the production andconsumption of goods whose limited availability is socially desirable.

In external tariff reform, the reduced number of rates achieves simplification of the structure. The lowermaximum rate and the non-zero minimum rate together limit the level of effective protection afforded to primaryfactors of production (labor and capital) engaged in the production of the goods concemed. Since such protectionis an encouragement to produce import substitutes, lowering the level represents also a reduction of the bias againstexports. In addition the institution of a non-zero minimum extends the tax base in the interest of fiscal revenues.Differentiation of rates according to the degree of processing gives protection rationality and ensures thatprotection remains positive. Effective protection would turn negative where a higher tariff applies to a product ata lower level (a raw material or semi-finished product) than to another at a higher level of processing (e.g. finalproduct).

In the case of sales tax reform, the aim is to convert the existing tax levied on gross output and selectedservices only into a value-added tax (VAT) that is neutral between goods and services and is as broad-based aspossible. As an expenditure tax, it is to be levied exclusively on consumption in order not to discourage investmentor production. Levying it as a VAT avoids taxing productive inputs. The neutrality of its application (preferablythe same rate applicable to both goods and services) ensures that the tax is levied on all expenditure whether ongoods or services. To the extent that the tax takes the same amount from the individual taxed regardless of theirincome, it may be seen as regressive. While some differentiation in its rates may be used to reduce this regressivity(by applying a lower rate to goods consumed more by the lower income households), it is preferable to pursue suchequity objectives through a combination of income tax and budgetary transfers.

Regarding excise tax reform, the objective is develop the current tax into one that serves exclusively tofurther equity or discourage the production and consumption of specific goods and services. The possibility oftransferring imported luxuries previously taxed at high tariffs to excise taxation makes this aspect of tariff reformeasier -- although the excise tax rates need to be recalculated on a base of landed cost of import plus the now-moderate tariff. The conversion of specific rates would remove the need to adjust rates at regular intervals.Avoiding differentiation according to packaging would make the tax serve its true purposes of equity and limitationof amounts produced and consumed.


5.6 The change in the sales tax to a VAT on a broader base incorporating imports and serviceswould be phased in, taking into account feasibility and the necessary changeover between importduties and sales tax as sources of fiscal revenue. The first step is the change to a VAT to beaccomplished by: (i) introduction of input tax credit for capital goods and other inputs purchasedby registered taxpayers; (ii) extension of the tax at the present rate (5 percent) to services notcovered at present, while allowing full and prompt tax credits for their purchases of taxedservices; and (iii) removal of exemptions on all consumer goods other than unprocessed basicfood or the barest essentials. Subsequently, the tax rate could be adjusted modestly upwards ifwarranted for revenue reasons.

5.7 The key reform to excise duties would make them applicable to imports as well asdomestic output and taking effect as certain goods (normally excisable) are removed from theimport tax base and brought into the excise duty base. In addition, (i) most excise duty rateswould be converted from specific to ad valorem (e.g. beer); (ii) differences in treatment of variousitems based on their use or packaging would need to be dropped; and (iii) while excise dutieswould not be applied beyond the standard range of luxuries, alcoholic and petroleum products,their value in taxing activities with negative externalities makes them useful weapon in Mauritius

where the quality of the environment is critical

5.8 A reformed tariff and VAT system would be rid of most of the disincentives for theproduction of exports and import substitutes whose presence in the general tax system hadprovided the justification for the establishment of the industrial incentive schemes. Since import-substituting industries could be provided with adequate effective protection through anappropriate tariff structure, all that would be strictly necessary is one export-oriented incentivescheme. The primary purpose of such a scheme would be to ensure that enterprises engageddirectly or indirectly in export activities are exempt from (or promptly receive drawbacks of)payments of import or other indirect taxes on the capital and intermediate goods and rawmaterials used by them. If the import taxes on industrial inputs are zero or very low in thereformed tariff structure and if a VAT or multi-stage sales tax incorporates a zero rate forexports, the general tax system would have only a weak anti-export bias needing to be offsetthrough the export incentive scheme. This would justify reforming the investment incentivestructure as well.

5The IMF is providing the government with advice on the details of this reform, including its administrativeaspects.


Rationalizing Investment Incentives

5.9 The investment incentive framework launched with the Export Processing Zones Act in1970 has evolved into a complex and highly differentiated structure that is cumbersome toadminister and distorts resource allocation. As part of the broader reform process, the authoritieshave decided to rationalize the framework in order to make it simpler to administer and moreefficient. Thus, in 1993 an Industrial Expansion Act (IEA) was passed to consolidate the variousincentive laws into a single piece of legislation. But the Act had an additional objective ofpromoting capital intensive, technology-driven and higher value-added industrialization. In theprocess, it introduced further differentiation of incentives and increased ministerial discretion intheir administration.

5.10 There are at present twelve distinct schemes. The IEA covers fairly broad schemes thatare administered by the Ministry of Industry and Industrial Technology -- Export Enterprises(EEs), Pioneer Status Enterprises (PSEs), Strategic Local Enterprises (SLEs), Industrial BuildingEnterprises (IBEs), Modernization and Expansion Enterprises (MEEs) and Small and MediumEnterprises (SMEs). In addition, there are five sector-specific regimes: Agricultural DevelopmentCertificates (ADCs), Housing Development Certificates (HoDCs), Health DevelopmentCertificates (HeDCs), Hotel Management Service Certificates (HMSCs) and a Film Development(FD) Scheme. Yet three other schemes, with exclusive orientation, cut across economic sectors:Export Service Zones (ESZ), Freeport Zones (FZ) and Offshore Companies (OCs).

5.11 The high differentiation in the system creates distortions. A primary source of thedistortion is the sharp difference in the marginal effective rate of taxation (MERT) betweeninvestors in companies qualifying for incentives and those that do not. It may be argued that theauthorities deliberately designed the incentive schemes to have the kind of bias indicated by theMIERT differentials, in order to give effect to their investment priorities. However, sinceinvestable resources are limited, the obverse side to the bias in favor of investments in qualifyingfirms is a relative bias against investments in non-qualifying firms. This latter bias adverselyaffects those import substituting firms that have low or negative rates of effective tariff protectionand do not qualify under any of the existing incentive schemes. The bias is even greater againstthe services sector, except for the export service firms covered by the ESZ scheme and theselected service industries to which incentives have been extended through, for instance, the PSEand HMSC schemes. The bias against the services sector may have been an important reason forthe failure of adequate linkages to develop between the EPZ sector and the rest of the company.

5.12 The amount of discretionary power exercised by officials is a second drawback. In thecase of a PSE certificate a high degree of ministerial discretion enters the decision as to whether:(i) the activity proposed involves a technology and skills which are above the average existing in


Mauritius and are likely to enhance industrial and technological development; and (ii) it isexpedient in the public interest to do so. Furthermore, the Minister may set limits on sales ofproducts on the local market and impose other conditions. The certificate would also specify thescheduled equipment and materials exempted from import and sales taxes. Similarly, the issue ofan SLE certificate depends on whether the Minister is satisfied that an enterprise manufacturingfor the local market is likely to enhance the economic, industrial and technological development ofMauritius as a whole. Other incentive schemes involve similar exercise of discretionary powers byofficials. The problem of discretionary powers is exacerbated by the complexity of the system.

5.13 Some eligibility conditions may lead to further inefficiency through their influence onenterprise size and scope of activities. Examples include the limitation of PSE certificates to onlyenterprises newly entering a qualifying activity, the implicit prohibition of an IBE enterprise fromengaging in any activity other than the construction of an industrial building for letting, and thebias against the construction of smaller buildings that is inherent in the stipulation that anindustrial building must have a floor space of not less than 1000 square meters to qualify for theincentive scheme. In addition, there is a bias against small and medium scale enterprises from therelatively lower incentives available under the SME scheme, being confined to import dutyexemptions on production equipment. These conditions may make it necessary for newcompanies dedicated to particular activities to be set up to qualify for the incentive packages,encourage the breakup of established companies into formally independent enterprises with a viewto benefiting from the incentives; and result in otherwise avoidable overhead expenses andforgone opportunities to realize possible economies of scale.

5.14 Some generally-accepted principles could serve as a guide to a rationalized framework: (i)a level playing field; (ii) avoidance of anti-export bias; and (iii) the use of tax credits, madeavailable to all enterprises that undertake the desired investments, regardless of whether they arenew or existing, and with automaticity. In view of this, a first step towards the rationalizationcould be a reduction in the complexity and differentiation by instituting two schemes in place ofthe 13-odd schemes that currently exist. Of the 12 separate incentive schemes, three are for thesupport of companies engaged in export activities, i.e., the EE (or EPZ), ESZ and FZ schemes,each with its distinctive incentive package. Except perhaps for the differences in the case ofmonitoring their activities, arising from the fact that FZ companies operate within an enclosed andguarded freeport area while EE and ESZ companies are located anywhere in Mauritius, it wouldbe difficult to make a case for the differentiated treatment of these companies. It should bepossible to redefine one category for them.

5.15 Among the other incentive schemes, the PSE and SLE schemes appear to coversubstantially similar activities; indeed, the question may be asked in this context whether thestated objective of the SLE scheme of promoting the establishment of "strategic" industriesproducing for the domestic market makes good economic sense in a small open economy likeMauritius. Even if the authorities wish to continue providing incentives for all the activities


covered by the present schemes that are not primarily export-oriented, i.e., the PSE, SLE, ADC,HCC, HDC, HeDC, HMSC and FD schemes, their merger into a single scheme providing a simpleincentive package is desirable. As for the IBE and MEE schemes, their respective objectives ofpromoting the construction of industrial buildings and encouraging the modernization of plant andequipment could be pursued more efficiently though the provision of tax credits or investmentsallowances to all enterprises undertaking the necessary investments -- without the creation of aseparate incentive scheme. Similarly, if the objective of the SMIE scheme of providing assistanceto small and medium enterprises is considered important, this may be pursued though special taxcredits or investment allowances available only to such enterprises.

5.16 A second step in the rationalization would be the replacement of the present 3-rate (35percent, 15 percent, and 0 percent) corporate tax system with a single rate system, with possiblythe inclusion of a special rate for offshore companies. The average effective rate of corporatetaxation under the present system would be a good guide to settirg the new rate. Partialinformation points to this rate being somewhere in the 25 to 30 percent range. This suggests thatthe new single rate should be in this range, if maintenance of the tax yield is a concern. Yetsetting the single corporate tax at a level higher than 15 percent seems to be precluded becausethe government has committed itself under current incentive schemes to tax several categories ofcompanies at 15 percent for their entire life. Since setting the new single rate at 15 percentwould involve some loss of corporate tax revenue in the short term, the adoption of a single ratesystem should coincide with a reform of the indirect tax system, including a rationalization ofimport taxes and a replacement of the current sales tax with a value-added tax (VAT).

5.17 As an associated measure, the treatment of dividends as follows from the existingclassification of the enterprises has to be rationalized as well. Since the government has givencommitments under most of the existing incentive schemes to exempt dividend paid toshareholders from tax for up to 20 years, it is suggested that dividends paid by companiesqualifying for the 15 percent corporate tax rate under either of the two new schemes should beuniformly exempted from tax in the hands of shareholders for a 20-year period. It isrecommended that apart from the concessional rate of corporate tax and the tax exemption ondividends, the two schemes should limit the provision of incentives to the exemption of ExportEnterprises from payment of import and sales taxes on imported capital and intermediate goodsand raw materials and the exemption of Pioneer Enterprises from payment of import and salestaxes on imported capital goods only. Any other incentives that are considered essential, forinstance those for modernization of plant and equipment, should be made available to allenterprises through the general tax system and not through special incentive schemes as atpresent.

5.18 The foregoing implies a change in the tax status of FZ, IBE, MEE and SME companies.In the above rationalization proposal, companies engaged in FZ activities, which currently payzero corporate tax, are included among those liable to tax at the incentive rate; however, if


government commitments to existing companies preclude such inclusion, there would have to beappropriate grand-fathering provisions for existing FZ companies and only new companies wouldhave to pay tax at the 15 percent incentive rate. It is also proposed that companies covered underthe present IBE scheme not be included among those eligible to pay tax at the incentive rate. Thisis because a permanent incentive scheme to promote the construction of industrial building havinga floor space of not less than 1000 square meters is difficult to justify. While it would bereasonable to provide incentives for the construction of industrial buildings during periods whenthere is a shortage of such buildings, such periods are likely to be of limited duration and to besucceeded by periods of excess supply. An incentive in the form of a tax credit or investmentallowance, provided through the general tax system whenever necessary, would be a betteralternative than permanent incentives given to a special category of companies engagedexclusively in the construction of industrial buildings. However, if the present IBE scheme isdiscontinued, grand-fathering provisions would be needed for already existing IBE companies.Companies certified under the existing MEE and SME schemes are also not included among thoseeligible to pay tax at the incentive rate. Even at present, these companies are required to pay taxat the standard rate. The objectives served by the MEE and SME schemes can be efficientlyachieved through appropriate provision in the general tax system.

5.19 A minor change to OCs may be warranted. Since the business of OCs is primarily withnon-residents, their exemption from taxes, fees, charges and zero rating for corporate tax mayalso be justified. It should be recognized, however, that if the OC is a subsidiary of a foreigncompany or has foreign shareholders, and if -- as is often the case -- the foreign country providestax credits to its residents for taxes paid abroad, the zero tax rate may not benefit the foreignersinvesting in the OC and may only imply a foregoing by Mauritius of potential tax revenue. Hence,if the zero rate of corporate tax is retained for OCs, consideration could be given to introducing awithholding tax, perhaps at 15 percent, on profit and dividend payments by OCs. Further,consideration could be given to withdrawing the exemption from filing financial statements withthe Mauritius Offshore Business Activities Authority (MOBAA) granted to OCs with sharecapital not exceeding US $1 million as the first measure in a program of action designed tostrengthen the capacity of MOBAA to monitor the activities of OCs.

5.20 Finally, some thought has to be given to the treatment of tax credits for companies listedon the Stock Exchange and for shares subscribed in these companies. The corporate tax systemdiscussed above consists, as already mentioned, of a new standard rate of 25 percent, the existingincentive rate of 15 percent, and the special zero rate for OCs. If the tax credit for listedcompanies is retained at 30 percent, there would be, in addition to the standard and incentiverates, two corresponding effective rates of 17.5 percent and 10.5 percent for listed companies.Some reduction in the size of this tax credit may be appropriate for revenue reasons. If the taxcredit is set at 20 percent, the respective effective rates for listed companies would be 20 percentand 12 percent, still providing a significant incentive for listing.


5.21 The case for the present tax credit of 30 percent of the amounts subscribed to shares ofcompanies in a range of industries is not as clear as the case for retaining the tax credit for listed

6companies. It has been argued that this tax credit creates a bias in favor of equity financing ascompared with retained earnings or debt financing. It could also be argued, contrariwise, that thetax credit merely offsets an existing bias in favor of debt finance arising from the deduction ofinterest payments in computing taxable income. Further, taking into account the ceiling of Rs300,000 per year on its amount, the tax credit has the merit of encouraging widespread shareownership. It has to be conceded, however, that the tax credit and the deductibility of interesttogether create a bias against retained earnings financing, especially during the periods of taxexemption for dividend payments under incentive schemes.

5.22 For greater efficiency and reduced revenue loss, it is suggested that the tax credit bewidened to cover share subscriptions to companies in all industries but be reduced in amount toperhaps 15 percent spread over 3 years, subject as now to the ceiling of Rs 300,000 per year. Atthe same time, the exemption of a portion, say 20 percent, of the undistributed profits ofcompanies from the corporate tax may be considered, with a view to correcting the existing biasagainst retained earnings financing. Alternatively, the bias in favor of debt finance could bedecreased by reducing the present expensing of interest payments in arriving at taxable incomefrom the present 100 percent to a lower level, perhaps 80 percent. However, this alternative isnot recommended as it would invite unfavorable comparisons with other countries that allow fullexpensing of interest payments.

6

For instance, in the report, Mauritius -- Toward the 21st Century. UNDP-World Bank Trade ExpansionProgram, Country Report 12, December 1993.


6. FACTOR MARKETS

6.1 The experience of the HPAEs underscores the importance of flexible factor markets inhelping channel capital and labor to their most efficient uses. Given the tight labor market and thewage pressure, the medium-term agenda should include policies to increase labor marketflexibility. A fluid labor market would: (i) continually allocate workers to their most productiveuses; and (ii) facilitate economy-wide adjustment to transitory macroeconomic shocks as well asto long-term changes. Such flexibility would require reforming institutional and marketregulations affecting employment, wage setting and pension and social security arrangements. Asto financial capital, increased efficiency in the mobilization and allocation of savings wouldminimize costs and the greater use of risk finance would raise firm-level competitiveness. Furthermodernization of the banking system and the development of the capital market would facilitatethe achievement of these objectives. These issues in labor markets, the pension system and thefinancial and capital markets are taken up in turn next.

Labor Market. Employment and Wages

6.2 Mauritius has experienced a decline in unemployment that many countries, bothdeveloping and industrialized, would envy. In less than one decade the unemployment ratedropped from almost 20 percent of the labor force to less than 2 percent. This change took placein the context of rising participation rates, resulting from a massive inflow of women into thelabor market. Therefore, the expansion of employment was even bigger than suggested by thedecline in the unemployment rate. While 293 thousand people had a job in 1983, thecorresponding 1993 figure amounted to 481 thousands, i.e. a 64 percent increase over ten years.In 1983, almost one fourth of the jobs was in agriculture and fishing, with sugar plantationsplaying the key role. In 1993, the proportion has dropped to less than one seventh. The largestjob creation has been in manufacturing (other than sugar milling), where employment increased byalmost 150 percent over the period 1983-93; the next largest was in tourism and related activities,where it roughly doubled.

Level of Real Wages

6.3 The decline in the unemployment rate has been associated with a significant increase inreal wages. Depending on the chosen indicator, the increase over 1988-93 ranged from 20percent, in the case of monthly wages, to more than 60 percent, in the case of daily wages. Thesepercentages exceed the corresponding change in the average productivity of labor which, in termsof output per worker, rose by 15 percent.


6.4 How does one account for the discrepancy between increases in real wages and laborproductivity? First, it is worth bearing in mind that the relevant comparison, from a theoreticalpoint of view, is not between real wages and the average productivity of labor, but rather betweenreal wages and the marginal productivity of labor and human capital. If the accumulation ofhuman capital proceeds at a faster (slower) pace than the accumulation of physical capital, theequilibrium level of wages, including returns to human capital, is expected to grow more (less)than the observed average productivity of labor.

Table 7: Mauritius - Labor Force and Employment Trends

1983 1993

Total Labor Force 365,000 489,700

Total Employment 293,000 481,000- Agriculture 78,400 71,300- Industry 86,800 172,800- Services 147,800 236,900

Unemployment Rate (%/o) 20.0 1.8

Source: Mauritius - Central Statistical Office, MEPD.

6.5 Second, the productivity series are based on real output measured at constant prices. Inthe process of converting current prices into constant prices, a correction is made to account forchanges in the country's terms of trade. Other things equal, an increase in the terms of trade leadsto a higher output at constant prices. In the case of Mauritius, the terms of trade index takes intoaccount the price of merchandise such as sugar and garments. But it does not take into accountthe price of services charged to tourists, in spite of the fact that tourism represents 22.5 percent offoreign exchange earnings. Since most of these services are labor intensive, their relative pricemight have increased as a result of higher real wages. This would have shown a different trendand possibly improving (properly measured) terms of trade. Therefore, the actual productivity oflabor grows faster, and the actual discrepancy with the trend in wages is smaller, than reflected inthe above numbers. These qualifications notwithstanding, it is still likely that during the last sixyears real wages in Mauritius increased by more than the (properly measured) productivity oflabor.

6.6 But real wages are still below their market-clearing level. The large number of workpermits for foreigners (about I percent of the labor force per year) shows that excess demandprevails in the labor market. A survey of managers in 1993 (conducted by the Mauritius


Employers' Federation) shows that, on average, only 36.2 percent of the managers consider thatactual wages are too high (see column 3, Table 8). The highest percentage corresponds to EPZfirms, in spite of their wages being below the national average, and the lowest percentage to banksand insurance companies, which in fact pay well above average. The wage level is not seen as

7inhibiting productivity gains either (column 4) . Finally, plans are to expand employment in allsectors, except agriculture and transport and communication (column 5). These responses meanthat in 1993 businesses were concerned about the trend in wages but not panicking.

Table 8: Mauritius - Employers' Views on Wages(as a percentage of total answers)

HighThe wage Wages are too high wages in- Plans topolicy is hibit pro- expandconducive Prescribed Actual ductivity employ-to growth wages wages gains ment (a)

Agriculture 11.8 41.2 47.1 47.1 -41.2Manufacturmg 60.0 3.8 42.1 23.7 8.1Export Processing Zone 57.1 8.8 51.4 28.6 20.0Wholesale & Retail Trade 63.2 0.0 28.6 4.8 28.6Hotels & Restaurants 72.7 0.0 33.3 25.0 16.7Transport & Communications 66.7 11.1 33.3 40.0 -10.0Banking & Insurance 66.7 14.8 14.3 11.4 31.4Other Sectors 0.0 0.0 44.4 11.1 55.6

All Sectors 53.9 9.0 36.2 19.8 14.8

(a) Percent of firms planning an expansion of their employment in 1993 minus percent planning a reduction.Source: Based on "Survey Report on Business Trends in Different Sectors," Mauritius Employers' Federation,Port Louis, May 1993.

6.7 Prior to the late 1980s, the labor market was significantly segmented and wages in somesegments were below what would have been the average in a unified market for particular typesof skills. This was most probably the case in the EPZ where the geographical dispersion of thefirms allowed them to act as monopsonists in their local labor markets. Under those conditions,the rise in real wages since the late 1980s would reflect the transition from monopsony tocompetition in the labor market, as a result of full employment being reached. This is consistent

7This question was actually meant to find out employers' views about the effect of wages on profitability.

Mauritius: Country Economic Memorandum 3 8

with the fact that daily wages increased far more than monthly wages. Indeed, the former arecloser to the spot price of labor, so that they are relatively flexible, whereas the latter are subjectto contracts and other institutional constraints, which make them more rigid.

Role of Labor Market Institutions.

6.8 The wage adjustment procedures in force have kept monthly wages from increasing asfast as daily wages. Under the centralized tri-partite mechanism, the (yearly, across-the-board andmandatory) adjustments are determined by indexation to past inflation, with inflation measured bythe increase in the consumers' price index over the preceding twelve months. The extent ofindexation depends on earnings. There is full indexation for monthly wages below Rs 2,000.Above this threshold, the adjustment percentage is a decreasing function of the wage level.Although firms may raise wages by more than required by the tri-partite committee, in practicethis mechanism tends to compress the wage structure.

6.9 Under the decentralized mechanism, the sectoral adjustments (of the wage minima) arehandled differently in the public and private sectors. Wage adjustments by category for publicsector workers are decided by the government, based on the recommendations of the PayResearch Bureau (PRB). The latter is supposed to apply a series of scores to each jobdescription, but it also takes into account wages paid by the private sector for similar jobs. Themost recent revisions of government wages were in 1987 and 1993. In both cases, the PRB

8aimed at keeping an after-tax ratio of 6.5 between the highest and the lowest earnings. Part ofthe PRB's task was thus to decompress the wage structure resulting from centralized wageadjustments. At a maximum wage range of 6.5 to 1, public sector jobs are more attractive thantheir private sector counterparts at the lower end of the scale, but clearly less attractive at theupper end. There is casual evidence that the government has difficulties in recruiting techniciansand managers. These difficulties are being faced by giving fringe benefits such as official cars (orthe possibility to import cars duty free), overseas passage benefits and other allowances.

6.10 For the private sector, minimum wages by sector and labor category are set by thegovernment, based on the recommendations of the National Remuneration Board (NRB) and afterdiscussion with employers' associations and labor unions. According to the Industrial RelationsAct, minimum wage adjustments have to be based on a comprehensive series of items, includinglabor peace, sectoral profitability, external competitiveness, the cost of living, relative wages andthe like. The reference to profitability and external competitiveness implicitly brings sectoralproductivity gains into the wage mechanism. On the other hand, as for the PRB, part of the taskof the NRB consists of de-compressing the wage structure resulting from centralized yearlyadjustments. The NRB applies to some sectors only.

8In its work, the PRB faces opposition from the union of civil servants which would rather like this ratio to

apply to before-tax earnings, for reasons of greater egalitarianism.


6.11 Minimum wage adjustments take place every three to five years depending on the sectors.Although the NRB has the initiative to decide about their timing, requests (or pressures) bysectoral trade unions play a key role in triggering the process. In this sense, the decentralizedmechanism is very much like the centralized one: decisions are formally made by the governmentafter consultation with the social partners, but in practice the bargaining power of organized laborhas considerable influence. Sectors where collective bargaining is in force, such as banks andinsurance companies, do not even resort to the NRB for wage determination.

6.12 Given the foregoing, it is clear why monthly wages do not increase as fast as the spot priceof labor does. The transition of the labor market from monopsony to competitive equilibriumimplies an upward shift of real wages. But the price indexation underlying the centralizedmechanism operates as an anchor slowing down increases. Two forces exert themselves in theother direction. First, private sector firms may raise wages by more than the tri-partite committeerequires. Second, sectoral adjustments by the NRB usually take into account the excess demand

for labor facing the concerned sectors.

6.13 Even then, agriculture presents some special features because of the degree of regulationof the sugar industry. The sugar sector is probably the only one where minimum wages set bythe NRB are binding, as suggested by the similarity of answers reported in columns 2 and 3 of

10

Table 8. Equivalently, the responses show that, given the wage structure, the agriculture sector(mainly sugar producers) would reduce staff by about 40 percent if it were free to do so. In otherwords, they consider the industry overstaffed. This presents a duality of sorts in policyimplications: at current average wages, the sector is over-staffed; at current staffing levels, theaverage wage is too high.

Existence of Labor Reserves

6.14 With the labor shortage and rising real wages, attention has turned to the question ofreserves of underutilized labor in sugar and the public service which might be shifted to moreefficient uses. The employment shares of the two sectors have been declining since the mid- I 970s.Government jobs fell from more than 20 percent of total employment in 1983, to 13 percent in1993. During the same period, employment in large sugar plantations (i.e. those with 10 or more

9But this is not always the case. The recently decided adjustment for the construction sector set wages well

below the spot price of labor, because of fears that the ongoing building boom may include a "bubble" component.

10Banks and insurance companies are the other sector where answers are very similar for prescribed and

actual wages. But this is because of the collective bargaining mechanism in force in this sector, not because oflegal minimum wages.


hectares) and in sugar mills dropped from roughly 16 percent to less than 9 percent. However,these changes result to a large extent from the expansion of total employment, rather than fromthe decline of employment in these two sectors. Their employment levels are still considered highin absolute terms; in 1993, the sugar industry employed about 39,000 people and the governmentsome 55,000.

6.15 Legal dispositions limiting the flexibility of sugar plantations' labor management explaintheir overstaffing. The sugar sector achieved some reduction of its labor force over the pastdecade (from some 48,000 to 39,000 for large establishments and sugar mills) but this occurredunder an implicit "waiver" and not an explicit relaxation of the legal constraints. Under the SugarIndustry Efficiency Act, plantations with more than 10 hectares are required to provide jobsecurity to all workers hired before 1988 (formerly, 1967), even during the intercrop season.These plantations are not allowed to reduce their labor force through attrition either, since theyare obliged to hire additional workers to make up for any difference between their currentemployment and their 1988 (formerly, 1967) labor force. Moreover, plantations with more than40 hectares are forced to retain 20 percent of their new seasonal workers.

6.16 None of these legal constraints apply to small plantations, which do not suffer from laborredundancy. Small planters actually have difficulty finding labor and pay higher spot prices atpeak times. Medium-size plantations, in turn, usually escape the legislation by dividing their landinto a series of smaller estates. Because of the gradual mechanization of sugar cane handling,these plantations almost do not hire seasonal workers anymore. More importantly, because of fullemployment, they do not fill the vacancies resulting from natural attrition. In June 1994, theMauritius Sugar Producers' Association agreed a package deal with organized labor that includeschanging the legislation so as to allow reducing employment by natural attrition.

6.17 In the case of the civil service, the stability of employment does not result from obstaclesto downward adjustment, but rather from successful efforts by the government to block anyfurther expansion. A large number of vacancies has been kept unfilled -- especially in cases whereservices have been contracted out or phased out -- in spite of the relative oversupply of jobseekers attracted by the higher civil service wages for low-skill workers compared to the privatesector. Unless average civil service wages for the low-skill categories are allowed to come in linewith wages for comparable levels of skill in the private sector, public service jobs at that level willremain more attractive to job seekers.


Measuring Labor Redundancy

6.18 The question is whether the employment levels are in some sense excessive, and in casethe answer is affirmative, by what extent. As regards government, the question can be addressedbased on international comparison such as was carried out by Heller and Tait (1984) onemployment levels in central governments, local governments and non-financial public enterprisesfor some fifty countries in 1980. Following their approach, one could examine the issue in termsof number of public servants it takes to deliver public services to a given quota of the populationor in terms of the relationship between the share of the labor force employed by the governmentand the level of output per capita.

6.19 For the sugar sector, there was at least one previous attempt at measuring laborredundancy based on an international comparison. Using data on productivity per employedperson in Belize, it was estimated that Mauritius could produce the same quantity of sugar as nowwith a quarter of the workers (UNDP/World Bank, 1993). Even allowing for differences innatural endowments or difficulties of mechanization, the conclusion was that the sugar industrywas using at least 20 thousand more workers than necessary.

6.20 However, it seems that this figure grossly over-estimates labor redundancy in the sugarsector. The volcanic nature of the island, which implies that there are stone blocks spread allacross the fields, makes it difficult to mechanize the harvesting. The Mauritius Sugar Producers'Association (MSPA) estimates potential labor redundancy, as mechanization proceeds, at 5 to 6thousand persons in the next 4 or 5 years. Both the MSPA and World Bank sugar industrytechnicians believe that some 50 percent of the operations could be mechanized (a general averagecombining harvesting, handling and transportation) over the next ten years, assuming theprevalence of a liberal labor regime. If that were to be achieved, up to 10,000 workers could bereleased to other sectors.


Box 5. Public Sector Employment

The relationship between public sector employment and economic development was assumed to be of the

quadratic form I:(LG/L)i = 00 + 1Y1 i + 02Yi2 + Ei

where (LGIL)i represents the share of the labor force employed by the government in country i, Yi is thecorresponding per capita output measured at purchasing-power parity (PP) dollars (see Heston andSummers, 1991), and Ci is a country-specific zero-mean disturbance. Two indicators, both from Heller andTait (1984), were used for LG: employment in general government, which includes central and local

administrations, and employment in the public sector, which in addition includes non-financial publicenterprises. Data for L are from the International Labor Office (1992). All variables are measured as of1980.

Countries whose share of public employment exceed the fitted value by more than the standarderror of the regression are considered to have out-size public sector employment. In 1980, Mauritius wasone of those countries with an overstaffed civil service. At that time, the general government accounted for14.9 percent of the labor force, whereas the fitted value, given Mauritius' level of per capita output, was 10percent. Employment in the broader public sector was also above the fitted value (20.3 percent, compared to14.6 percent), but the gap was less than the standard error of the regression. In 1993, Mauritius lay belowthe estimated schedule for both general government employment and public sector employment. Again, thegap between the actual and fitted value was lower than the standard error of the regression.

Other estimates were made on the 1993 situation, using per capita output measured in currentrather than PP dollars, with different conclusions. When per capita output is measured in current dollars,instead of PP dollars, Mauritius lies presently above the fitted value by 2.98 percent of the labor force in thecase of general government, and by 3.96 percent in the case of the whole public sector. But these gaps aresmaller than the standard errors of the corresponding regressions.

1/ Heller, P. and A. Tait (1984): "Government Employment and Pay: Some International Comparisons",International Monetary Fund, Occasional Papers, 24, Washington DC.

6.21 In the case of the public sector, the original Heller-Tait results showed that in 1980Mauritius had an overstaffed public service (both central government and the broader publicservice). The study of central government in 47 countries (16 OECD industrial; 16 African, 5Asian and 10 Latin American) found that the OECD industrial had 3.1 employees per 100population; Africa had 1.8 per 100; and Asia and Latin America each had 2.6 per 100.Developing countries as a group had 2.4 per 100. Mauritius's central government had 5employees per 100 inhabitants, heavily overstaffed in terms number of employees per capita. Interms of per capita output, however, the redundancy was less pronounced -- about 5 percent (SeeBox 5). When these techniques are applied to the situation in 1993, the results point toconsiderable overstaffing in terms of number of employees per capita (still 5 per 100) butnegligible redundancy in terms of employees per output per capita (about 3 percent).

6.22 An important caveat applies to the results of the employment-per capita output analysis.They only provide a relative measure of labor redundancy. It is now generally accepted that

Mauritius: Country Ecotnomic Memorandum 43

government employment is excessively large in most countries, and that this was particularly sobefore the privatization and structural adjustment processes of the 1980s. Whereas the analysisshows that Mauritius is faring better in 1993 than most countries did in 1980, the averageproductivity of labor in the government could still be much lower than in the private sector.Indeed, in an economy like the Mauritian one with a small population and high growth, theapproach can hide redundancy. In practical terms, Mauritius should create for its sugar sectorthe flexibility that would permit the relcase of up to 10,000 workers to other uses over themedium term. It should also work on pay and employment policies in the public sector towardthe 3 per 100 of population more characteristic of the fast growing middle-to-upper income non-federal countries. This would release upwards of 20-25,000 workers.

Reform of Institutions and Procedures

6.23 Mauritius compares favorably to other developing countries in terms of the regulatorydimension of labor flexibility. There are few formal obstacles to the sectoral mobility of labor orblanket restrictions on job termination. The exception is the regulatory provisions responsible forthe overstaffing of the sugar industry. Under the tight labor market conditions, the proceduresought to be reformed to allow large plantations and sugar mills latitude to adjust their personnelto their needs. If a thorough revision of the Sugar Industry Efficiency Act is not feasible for themoment, then at least firms should be allowed to reduce their staff through natural attrition. Thischange would amount to legalizing a practice that is currently tolerated by the government.

6.24 The NRB's regulation of private sector employment practices can be made more flexible.It is one thing to regulate overtime, or to set health and safety standards; it is a very different oneto decide about the number of tables a waiter can serve. If working conditions for some laborcategories are harder than for others, then wages for the hard-work jobs can be expected to behigher. Even if there were reasons to believe that the market would not take care of thedifference in effort, which is dubious, the appropriate regulation would be to relate minimumwages to effort intensities. The way the NRB is currently dealing with labor standards representsan obstacle to the introduction of more efficient techniques and hence, ultimately, to the increaseof real wages.

6.25 Mauritius does not fare so well on a second dimension of labor market flexibility --relationship between actual and optimal wages. The first problem area is public sector wages.The current earnings structure in the government is excessively compressed. Wages at the lowend of the scale are high compared to their private sector counterparts; this creates pressures formore employment at that level. At the other end of the scale, wages for technical staff are low,which limits the capacity of the government to recruit and retain a talented and educatedbureaucracy. This gives rise to efforts to compensate low wages through payments in kind (suchas duty free cars), which are likely to entail allocative inefficiencies. Moreover, they might reduce

Maurilius: Country Economic Memorandum 44

the "transparency" of the income sources of top officials, thus adversely affecting the prestige ofthe bureaucracy.

Bargaining and Wage Setting Process

6.26 The main source of real wage rigidity is indexation to past inflation, through the annualadjustments of nominal wages set by the tri-partite committee. Therefore, it could appear thateliminating this mechanism, and moving towards a much more decentralized revision of nominalwages, is a way to increase the efficiency of the labor market. This is basically the proposal of theMauritius Employers' Federation (1993), which favors the development of collective bargaining atthe sectoral level, very much in the spirit of the mechanism already in force for banks andinsurance companies.

6.27 On the basis of the experience of the OECD countries, it has been argued that countrieswith either firm-level bargaining or a fully centralized wage adjustment mechanism perform betterthan countries where negotiations are carried out at the sectoral level. This is reasonable becausewhen product markets are competitive, labor unions organized at the firm level are not powerfulenough to introduce a significant wedge between wages and productivity. On the other hand,nation-wide labor unions are powerful, but they also have an outlook going beyond the immediategains of their membership. They therefore internalize the effects of their actions on the labormarket and tend to set "moderate" wages to avoid high unemployment. The problem arises at thesectoral level, where labor unions are powerful enough to raise wages, but not encompassingenough to internalize all of the effects.

6.28 The choice for Mauritius appears to lie between fully centralized and firm-level bargaining.Fully centralized wage adjustments are preferable when countries have market power in foreignmarkets. This is because high wages are a way of exploiting the country's monopoly power inforeign markets, much the same as a second-best tariff in standard international trade theory.Mauritius most probably has market power in its unique grade of tourism, but is at the same timea price-taker in the textile markets. While both sectoral negotiations and centralized wage settingcan deliver wages above market-clearing levels, wage bargaining organized at the firm level andcompetitive labor markets cannot. Perhaps, for Mauritius, with a competitive labor market, firm-level bargaining is the preferred choice.

6.29 Whatever choice is made, the exclusive use of past inflation as the adjustment criterionmust be corrected to bring into play a measure of productivity changes. It can be argued thatsectoral adjustments of minimum wages by the NRB do include productivity gains, since theyrefer to profitability and external competitiveness. But fluctuations in the country's terms of tradeaffect the productivity of all sectors at once, so that taking care of them on a sector-by-sectorbasis over a three- to six-year period could lead to an unnecessary long and inefficient adjustment


process. If a centralized mechanism is to be kept, then export prices should be as important asconsumer prices in determining the magnitude of yearly wage adjustments.

Pension and Social Security Systems

6.30 Mauritius has a sophisticated pension system covering retirement benefits and generalsocial security. It comprises a variety of plans. In the public domain, there is an Old-Age SocialSecurity and Social Assistance Scheme, a Government Employees' Pension Plan and a ParastatalEmployees' Pension Plan; in the private sector there is a General Private Sector Pension Plan, aPrivate Corporations' Pension Plan and a Personal Savings Plan. The Private Sector RetirementPlan is administered by the National Pension Fund (NPF). The Old-Age Social Security andSocial Assistance Scheme is budget-based but handled administratively by the NPF.

6.31 Despite its sophistication, the system has not kept up with the evolution of the economyand it now exhibits shortcomings in three areas. First, its two main retirement schemes do notallow transfer of benefits from one to the other, which constitutes an impediment to the mobilityof factors of production, particularly labor. Second, changing demographic conditions are raisingthe liabilities in such a way as to threaten the system's financial viability. Third, the build-up ofunrecognized liabilities makes it impossible for the system to make a strong contribution to thedevelopment of long-term finance. The various schemes could be reformed to remove theseshortcomings.

Old-Age Security (OAS) and Social Assistance

6.32 The OAS portion of this scheme pays guaranteed minimum benefits to all Mauritiancitizens once they reach the age of 60, regardless of family or income status, provided they meetcertain residency requirements. The benefits are not earnings-related and no contributions arerequired. The Social Assistance segment covers additional needs of the disadvantaged(handicapped, widows, orphans etc.). This scheme is not "funded" and resources to meet thebenefit payments come from the national budget.

Private Sector Earnings-Related Pension

6.33 This is a contributory scheme that was launched by the government in 1978. Membershipis compulsory for all private sector workers, but public sector employees (government, municipaland parastatal) are expressly excluded. Participants contribute a portion of their earnings up tocertain limits, for most 3 percent with a matching 6 percent from employers. The contributionsand the benefit formula are such that an employee whose salary throughout his working careerwas equal to the contributory ceiling under the plan, could expect to receive a retirement pensionequal to one-third of his final salary. When coupled with the OAS minimum guaranteed benefit,


such a retiree would receive total benefits that approximate 50 percent of final salary. Unlike theminimum portion, the earnings-related pension scheme NPF is funded, with contributions made byboth employer and employee for all participants.

Government Employees' Pension Plan

6.34 This is an unfunded plan that offers retirement benefits to public servants, based on years'of service and final average pay. Benefits can commence as early as age 50 but not later than age60. Although the plan is non-contributory, the benefits are quite generous as a percentage ofsalary (up to 66 percent of final pay) compared to the benefits available to most other workers(tied to pension points purchased with their contributions). The vesting rules under the plan arequite strict and in many cases a male employee who leaves the public service before age 45,having less than 10 years' service faces complete forfeiture of his retirement benefits. Since suchan employee has also been excluded from participation in the contributory portion of NPF, theforfeiture is a major loss.

Parastatal Employees' Pension Plan

6.35 This is a system of plans, organized by corporation, with benefits similar to those ofgovernment employees. The plans are funded and the contributions (from employers only) areaccumulated in special accounts established by SICOM (the former State Insurance Corporationof Mauritius). Public servants who transfer their employment from the government to a parastataldo not forfeit their pension benefits. They are integrated with those which accrue to them underthe parastatal scheme. An employee who leaves a parastatal, which is not an "approved service"(which is mid-way between a government department and a public corporation), prior toretirement age, forfeits his benefits, despite the fact that the plan is funded -- even if thegovernment is his next employer.

Private Corporation Pension Plans

6.36 Although not an extensive practice, an increasing number of private employers inMauritius are establishing pension plans. Employers have recognized that the level of incomereplacement offered under the two parts of the NPF scheme to employees earning mid-to-upperlevel incomes is not sufficient. In fact, this promises to be a growth area for life insurancecompanies who are specializing in the development of such plans.

Personal Retirement Savings

6.37 In an effort to encourage retirement savings, the government of Mauritius has raised thetax-deductible amount for such savings by a considerable amount. Individuals may now deduct upto Rs 100,000 from their income in a year. The limit is applied to the aggregate of all amounts


paid for pension plans, annuities and retirement savings accounts. This, too, could turn out to bea growth opportunity for life insurers since they are uniquely positioned to offer longer-termsavings accounts.

Introduction of Portability

6.38 At present, private sector workers contribute to the earnings-related portion of NPFthroughout their working careers in the private sector. There is complete portability of thebenefits as a worker moves from employer-to-employer within the private sector. However,should a private sector worker accept a position with the public service, he would cease to be acontributor to the NPF. His benefit accumulation up to that point would remain vested, but is notportable into the retirement plan for public servants. Public sector employees (including thosewho work for regional or local governments) are not participants in the contributory portion ofthe NPF. If the worker accepts employment in the private sector, he ceases to be a part of thepublic service plan. Leaving aside exceptional circumstances, vesting is available for workers wholeave the public service: (i) at retirement (age 55 or older, age 50 with approval); (ii) on groundsof ill-health; or (iii) on "early retirement" at age 45 or older, with 10 years of service. This meansthat if a male worker is less than 45 years of age and has less than 10 years of service, allentitlement to retirement benefits from the public service is forfeited.

6.39 It is normal to have minimum periods of employment that qualify a worker for "vesting" ofpension credits (the process by which accumulated pension credits become an acquired or accruedbenefit towards retirement) especially when the purchase of those pension credits is paid for bythe employer. "Portability" enables the worker to carry his accrued pension credits with him ashe moves from employer to employer. Portability can thus be regarded as another way ofachieving vesting -- making certain that the worker does not forfeit any accrued pension rights. Inmany cases, and certainly in periods when wages are increasing and the pensions are based onfinal salary, the opportunity to transfer benefits under a "portability" clause can be a more valuablealternative for the worker than simple vesting.

6.40 Currently, the pension rights of a public servant are transferable to a parastatalorganization, or approved service. Although the funding of the two plans is different, thegovernment commits to compensate the pension fund of the parastatal to enable it to cover thecost of pension benefits transferred on behalf of any transferring employee. Employees ofparastatal organization are subject to the same vesting rules as public servants. In other words, ifthe employee moves to private sector employment, he must meet the 45-and-15 requirement orforfeit pension benefits accrued. There is no special provision for portability of benefits for anemployee who wishes to transfer from a parastatal, which is not an approved service, to the publicservice, despite the fact that such portability exists for transfers in the opposite direction.


6.41 A vesting period of 15 years as now prevails for the public service in Mauritius seemsexcessively long. It is also a needless disincentive to movement of labor out of the public sector,which is currently relatively overstaffed. The authorities should consider shortening it. Since theretirement scheme is entirely funded by the government, five years would seem a reasonablevesting period. In parallel, consideration should be given to introducing similar vesting rules forparastatal organizations as well.

Integration of Public Servants into the NPF

6.42 As noted earlier, public servants are excluded from participation in the contributoryportion of the NPF. This exclusion poses a problem for a worker whose career includes periodsof employment within and outside the public service. For such a person, the periods of publicservice employment would be periods of non-participation in NPF and this would result in lowerentitlement to retirement benefits from NPF. In order to enhance labor force mobility, it is notenough to make pensions portable. It is also necessary to remove the potential loss of benefitsfrom non-participation in the NPF. To overcome this factor, consideration should be given toincluding public servants in NPF. By operating one public scheme for all residents, nearly all theOECD countries include their public servants in the national plan in this way; occupationalschemes exist and participation is voluntary in all but a handful of them (See Appendix C onalternative pension systems in OECD countries). The change recommended here for Mauritiuswould mean complete "portability" of pension credits for all workers in the country, at least up tothe amount of their NPF entitlement. Also, since NPF is contributory for both worker andemployer, the consequence would be a partial move towards funding of benefits for publicservants.

6.43 The decision to include public servants in the contributory portion of NPF would requirecareful analysis. This process of "integration" amounts to adjusting the benefits that wouldotherwise be paid out of the retirement plan for public servants to recognize that some of thebenefit would come from NPF. An important consideration is that contributions (and hence thebenefits points bought) under the NPF have an upper limit. That limit stood at Rs 4,335 in 1994.For the higher salary levels in the public service, full integration would imply contributions (and,therefore, purchase of benefit points that run up against the ceiling. In view of this structuraldifference between the public service plan and the NPF, integration may have to be approached byadjusting the ceiling upward or removing it altogether. In addition, the government would haveto make a contribution to the NPF fund in respect of the accrued benefits for all workers currentlyactive and covered under the public service retirement plan. The amount to be contributed wouldhave to be determined by actuarial computations.

6.44 The government could retain a firm of independent actuaries to examine the various issuesrelated to the integration of the public service retirement plan with NPF. The actuaries couldadvise on the steps necessary to carry out the conversion and could estimate the amount that


would have to be transferred to NPF to complete the transaction. Among other options, thegovernment could consider funding its contribution to NPF, following the integration, by meansof a long-term interest-bearing government bond issued in favor of NPF.

Financial Sustainability of the System

6.45 The issue of sustainability arises because of the demographic transition creating aprogressively aging population. There are currently approximately 7 workers for every pensionerin the country. Assuming the retirement age and the labor force participation rate remainunchanged, this ratio will decline to about 3-to-I by the year 2030. As this "support ratio"changes, financing of pensions becomes a heavier burden on those still working.

6.46 A first focus is that part of NPF that is earnings-related and is funded by contributionsfrom both workers and employers. Over the next fifteen years or so, the contributions fromemployers and employees are expected to exceed contributory pension costs. A surplus willtherefore be available for investment and the National Pensions Fund will continue to increase.However after that time, the expenditure on pensions will have increased to such an extent that itwill start to exceed contribution income. Although the precise timing will depend upon theinvestment returns achieved on the Fund's assets as well as the actual outcome of the variousfactors on which assumptions have to be made in the projections, it is inescapable that the NPFwill start to decline early in the next century.

6.47 It will therefore eventually be necessary to make adjustments to the provisions of theNational Pensions Fund. The timing will depend on the nature of the changes deemed necessaryas well as the need which the Government attaches to maintaining the annual surplus so that newmoney is available for investment. In pension matters, it can often take a considerable time forchanges to be effective because of entitlement built up before the changes. This is an importantconsideration to bear in mind when planning reforms.

6.48 A second focus is the "basic" pension (OAS), funded from the budget. Assuming that thegovernment will continue to meet the full cost of basic pensions, future trends in expenditure onthese benefits have no net effect on the NPF. However, future increases in the number ofpensioners will make the financing of basic pensions an increasing burden on resources. Theimpact is relatively small until the end of this century but then increase sharply.


Table 9: Mauritius: Public Pension and Social Security Expenditures, 1988/89-1993/94

Millions of Rupees

1988/89 1989/90 1990/91 1991/92 1992/93 1993/94

Total Pensions 894 953 1,208 1,486 1,616 1,896o/w Civil Service 420 418 478 550 584 760o/w Transfers to NPF 474 535 730 936 1,032 1,136

%Budg.Exp. 11.0 10.0 12.0 13.0 13.0 15.0%GDP 3.0 2.7 3.0 3.3 3.2 3.2

Memorandum ItemsBudg. Exp. 8,231 9,254 10,328 11,848 12,508 12,525GDP curr. prices 29,974 35,090 40,401 45,241 50,948 58,867

Source: Mauritius -CSO, MEPD: Digest of Public Finance Statistics; Staff Computations

6.49 Thus both the basic and the contributory pension schemes face increasing funding burdens.The government transfers to fund the basic pension alone is expected to grow from Rs 900 millionin 1990 to reach Rs 2,622 million by the year 2030. It would take significant changes in thesystem to ensure its long-term viability. In general, a number of options is available to policymakers facing such a situation -- increasing contributions, reducing the target pension, raising thepension age or reducing inflation protection of pension payments. In Mauritius one couldenvisage: (i) doubling the contribution rates with no increase in the target pension; (ii) halving thevalue of a pension point or increasing the pension age to about 69; (iii) or, preferably, acombination of the two.

Financing of the Public Service Retirement Plan.

6.50 Government employees' retirement benefits are paid out of the annual budget. In fiscal1990/91, an amount of Rs 550 million was paid. Two fiscal years later, the amount has risen by38 percent to Rs 760 million. This amount will increase at a rapid pace as demographic changesproduce retired public servants at an accelerated pace. Together with OAS payments andtransfers to NPF (to bring private pensions to the public-determined threshold), these paymentswill absorb 15 percent of the budget in 1993/94 (Table 9). The weight would be expected to risein line with the progressive aging of the population. But as argued in para 4.5, social securitypayments already loom large in the budget and appear to be crowding out expenditures on humancapital formation in particular. A reform of the system is unavoidable in the interest ofsustainability in the context of a greater need for public support to human resource development.

Maurilius. Country Economic Memorandum 51

6.51 A reform would be planned on the basis of detailed review which itself would serveanother useful purpose. The "accrued liability" -- the present value of all amounts expected to bepaid out under the retirement scheme, including benefits to be paid to persons now retired as wellas those accrued, vested benefits to which persons still in service will ultimately be entitled areeven more important than the annual payments. If the public service retirement plan were to be"fully funded" there would have to be a fund established containing assets having a present valueequal to the accrued liability just described. The accrued liability under the public service planwould likely exceed Rs 5 billion. As in the example of the NPF, it would be appropriate for thegovernment to obtain some idea of its growing liability under the public service retirement plan.To do so, a team of independent actuaries could be retained to examine and to report on thesituation. It would be wise if such a report was prepared each three years, as is the case for theNPF.

Financial and Capital Markets

6.52 The financial sector in Mauritius is well on the way to providing financial services with theefficiency and speed characteristic of developed economies. The degree of financial depthachieved to date (ratio of M2 to GDP of 73 percent, with deposits accounting for 90 percent oftotal M2) is an indication of the relative sophistication of the sector. In the last two years thesector went through a period of growth and liberalization. Further development of the sectorwould contribute to objectives of higher productivity and increased competitiveness through (i)reduced cost of financial services as services providers compete among themselves; (ii) greaterresilience of enterprises owing to increased use of risk finance from the capital market; (iii) highernational savings as avenues for savings growth, including contractual savings.

Commercial Banks

6.53 Twelve commercial banks operate in Mauritius (prior to March 1994, there were thirteenof which one a legally-independent subsidiary of another); seven are locally incorporated and fiveare foreign banks. The banks operate 130 branches and an additional 20 counters. This gives ahigh penetration ratio of 7300 people per branch or counter. In addition, the lowest incomehouseholds are also served by the Mauritius Post Office Savings Bank whose 75 branches acceptsavings accounts with very small sums.

6.54 One issue critical to competitive services is the degree of concentration in the sector. Thetwo major banks (officially counted as three, with the third being a fully-owned subsidiary of thelargest bank) dominate the sector. In mid-1993, the two largest banks accounted for more than75 percent of commercial banks' loans and deposits. The next three largest banks accounted forsome 13 percent of loans and , leaving the smaller seven banks with a very small share of themarket. The high degree of concentration creates a danger of oligopolistic practices, thus


preventing the economy from benefiting from free competition in banking services. (One has tobear in mind that for many years, credit ceilings and other restrictions prevented any significantchange in the structure of the sector. These restrictions were only removed recently and thechange has not yet affected the balance sheets used for computing the above ratios).

6.55 The reforms of 1992-93 (para. 2.2) begin laying the basis for the development of a morecompetitive, less concentrated sector. The monetary and trade sector reforms have largelyliberalized commercial banking. The elimination of credit ceilings and the freeing of interestintroduced competition into the credit market. The abolition of the obligation on exporters toconvert receipts twice (once into rupees and back into foreign currency in order to pay forimports), has eliminated conversion spreads as a source of income for banks. The two effects --

lower income from fees (and exchange rate spreads) and more competition in the credit market --

should help make commercial banks more dynamic institutions. As a first sign of greatercompetition, at end-1993, two banks were offering for large fixed deposits a rate 0.5 percentabove that offered by all others. A number of steps could further the development of a morecompetitive, less concentrated sector, which is well supervised and in which public confidencecontinues to grow:

116.56 First, it would be appropriate to revise the modality of setting credit limits. These limitsare currently set as a percentage of deposits. The objective is direct control of monetaryexpansion. The same monetary policy goal could have been achieved indirectly, as common inmost countries, by establishing liquidity and reserve requirements relative to deposits. Themethod discourages the banks from increasing their capital, as additional capital does notautomatically allow additional lending. The practice counters the typical policy of central banksworldwide to encourage banks to increase their capital and their capital to liabilities ratio.

6.57 Second, the government's profile in the banking system needs to be de-emphasized. Thegovernment's presence in the sector, through ownership and management of the SBM is strongerthan can be justified by efficiency considerations. The proposed sale of SBM shares to the public(prospectus under preparation) is a step in the right direction towards de-emphasizing thegovernment's role in the provision of banking services. Indeed, in order to further soften the handof the public sector, it could also encourage parastatals to bank freely with all banks withoutdistinction as to ownership, taking care only to avoid unnecessary risks.

11The 1994-95 budget announced the intention to phase out the credit/deposit ratio which currently stands at 65percent.


6.58 Third, a number of institutional steps can be taken to increase competition. The newinitiatives for better functioning of banking, such as the introduction of a new clearing system,should be designed in ways that provide the same level of benefits to small and large banks alike.Similarly, with the prospect of expanded use of Automatic Teller Machines (ATMs) the smallerbanks should be encouraged to organize to operate a system of ATMs, on a cooperative basis.These measures would avoid the large banks furthering their advantage over the smaller banks,with the attendant risk of further concentration.

6.59 Fourth, the authorities should consider establishing a deposit insurance scheme both toenhance public confidence in the banking sector (especially the small banks) as well as limit theirown exposure in the event of bank failures. Such a scheme should be mandatory, financed bypremiums paid by the commercial banks at an agreed percentage of their total deposits, and cover

12deposits up to a set limit equivalent to the typical upper limit of private deposits . The schemewould reassure small depositors, with an obvious benefit to the smaller banks. It would also limitexplicitly the government's exposure, in contrast to the implicit unlimited liability at present(witness the cases of Bank of Credit and Commerce International --BCCI and MauritiusCooperative Central Bank --MCCB, which both had to be rescued). Once such a depositinsurance scheme in place, the government and the central bank should avoid rescuing banks

which fail due to bad management.

6.60 There is also need to institute a disclosure policy. Currently, commercial banks' publishedaccounts are much less revealing than is common in developed countries. When BoM insists onfull disclosure in published financial statements, one existing reason for banks to shy away fromissuing shares to the public and for trading on the Stock Exchange would disappear. Such adisclosure policy would also strengthen large depositors' ability to evaluate the banks with whichthey conduct business. This in turn would justify the policy of limiting the responsibility of thecentral bank and the government to a stated ceiling.

Offshore Banks

6.61 Offshore banks were introduced in 1988 as a first step towards developing Mauritius intoan international financial center. By December 1992, the seven offshore banks had total assets ofUS$ 324 million, or less than 15 percent of the assets of the commercial banks. All the banks are

12A better approach still would be to encourage the banks to establish their own insurance scheme.

13The Bank of Mauritius does not find the argument persuasive. It considers that adequate provisions havebeen made in the Banking Act of 1988 to protect depositors in case of bank failures.

Mauritius: County Economic Memorandum 54

subsidiaries or affiliates of commercial banks, or sister branches of foreign banks, operating inMauritius (except one offshore bank which operates as a marketing organization for a Swissprivate bank, and has no significant assets in its Mauritius branch balance sheet). No new majorplayer in international banking has taken advantage of the offshore banking laws and opened abranch. A flexible regulatory environment would help limit costs and facilitate the growth of thesubsector.

6.62 Initially, there were regulations requiring offshore banks to operate as separate entitiesfrom the commercial banks that own them -- with separate managers, offices and equipment.These regulations were inspired by a desire to be vigilant at the outset and set a tone for ethicalconduct among the offshore banks. With the initial anxieties now allayed, the authorities haveended the requirement for strict separation of offshore from other business.

6.63 Looking ahead, it may be useful to envisage a situation in which offshore banking servicesare offered by all banks, with such services be made available without the extra cost burdencreated by the current regulations. When further liberalization of foreign exchange controls takeplace, offshore banking could then be integrated into the regular commercial banking activities.This would be a reasonable approach since changing world economic conditions (including theforeign exchange regulations and tax regime in the industrial countries), and developments in theregion (the high degree of uncertainty) suggest a limited scope for offshore banking as a stand-alone activity.

Capital Markets

6.64 A number of important capital market developments occurred in the last two years. TheStock Exchange (SEM) and the supervisory agency, the Stock Exchange Commission (SEC),progressed substantially. Trading sessions were more frequent, the number of companies listedfor trading increased and over-the-counter trading in stocks of a large number of unlistedcompanies was initiated. The listing procedures were streamlined, and incentives for listing wererevised to uniformly grant a percentage reduction in the tax rate to all listed companies. Mutualfunds and investment trusts were established, and started to become important players in themarket. One country fund was created, and introduced foreign investors to the Mauritius capitalmarkets. The government initiated both the National Mutual Fund (NMF) and the NationalInvestment Trust (NIT), and also took additional steps to promote investment by the public insecurities by offering shares in SIC-owned parastatals through the NIT.

6.65 At this stage, some modification of the operational modalities of the institutions would beworthwhile. This is particularly true of how market growth is stimulated. In general, theauthorities should reflect on the use of tax incentives to develop the capital market. All suchselective incentives reduce tax revenue and, therefore, militate against a lowering of the general


tax rate. Arguably, an across-the-board lowering of the tax burden would generate a positiveeffect on the economy in general and the capital markets in particular that is greater than theeffects of any special concessions involving the same amount of foregone tax revenue.

6.66 First, the incentives to investors are distortionary and ought to be revised. Investors innew public offerings, including investments in offerings of investment trusts, get 10 percent oftheir investment deducted from their income tax liability each year for three years. In effect, thetax authorities are thereby paying for 30 percent of the investment over three years. This isexcessive especially as it adds to tax exemptions on dividends and capital gains. Furthermore, theincentive discriminates against open-end mutual funds, where the 10 percent incentive is grantedonly once. As a first step, incentives for investments in trusts should be reduced to the level forinvestments in mutual funds. This way, the choice by both the investing public and fund managersbetween close-end and open-end funds will be based on the intrinsic attractiveness of eachinstrument, and not on a discriminating incentive structure.

6.67 Second, the government have begun to reduce its role in markets that can be fully servedby the private sector. A growing private sector interest is evident from the several privately-managed investment trusts formed and additional under way. This development should furtherencourage the government to reduce its involvement in the capital market, including reducing taxincentives as discussed above. The authorities could encourage a greater private sector role byoffering shares in parastatals to the public, with no exclusivity or preference to any specificinvestor (including NIT). Such offerings could be made by publishing prospectuses and offeringboth new shares (with proceeds flowing to the companies) and existing shares presently owned bySIC (with proceeds flowing to SIC to finance its investments in other companies).

6.68 Several systems necessary for the smooth operations of the Stock Exchange are presentlyin different stages of study or development and should be brought to fruition as promptly astechnical considerations would allow. Among these is a Central Depository (CD) for securitieswhich is under preparation and is expected to be operational by the end of 1995. It wouldmodernize share transfer, clearing and the settlement system.

6.69 The pace of the development of activity in bonds has been slow, and some inefficiency inthe means used to stimulate their development is part of the reason. Although the governmentand the SEC and SEM strongly favor the introduction of corporate bonds into the market, hardlyany bonds exist. Bonds issued by the Mauritius Leasing Company Ltd. (MLC), DevelopmentBank of Mauritius (DBM) and the government are hardly traded, although some of them arelisted. There are several guesses why there is no active market in bonds and no corporate bondsin the market: (i) government bonds are offered with tax exempt interest, making competition bycompanies difficult; (ii) companies with no traded shares shy away from the reportingrequirements for a listed company (be it for trading in its shares or its bonds); (iii) the limited


supply of bonds, which are government sponsored is readily bought by institutional savinginstitutions, such as the National Pension Fund and insurance companies, and never traded again;(iv) until recently, artificially low interest rates on loans to priority sectors made long-term debtinstruments with market interest rate an unattractive financing option. While the introduction oflong-term debt instruments, and active trading in them would add depth and importance to thestock exchange as a major contributor to financing new investments, the government shouldrefrain from forcing such developments by artificial incentives. If low interest rate loans are nolonger available, companies, especially those whose shares are already listed for trading, will issuebonds.

Non-Bank Financial Institutions

6.70 Some improvements are warranted in the regulatory environment of non-financialinstitutions to create greater transparency and minimal distortion so as to raise the effectiveness ofthe role of these institutions in the growth of term finance. Several non-bank financial institutionsplay a role in the Mauritian financial sector. We examine below how to strengthen theperformance of three major ones -- Development Bank of Mauritius (DBM), Mauritius HousingCompany Ltd. (MHC) and Mauritius Leasing Company Ltd. (MLC) -- and also take up thegeneral issue of the need and place for nonbank financial institutions, the more specific issue ofventure capital, and the need and scope for the establishment of a licensing/supervision agency fornon-bank financial institutions.

6.71 DBM provides long-term credit and has a large portfolio. At end-1992, its total loanportfolio amounted to some Rs 2.0 billion, more than 10 percent of the total outstanding creditsof the commercial banks. In the last few years DBM showed improvement in its performance.The percentage of non-performing loans to the total portfolio declined from almost 20 percent in1990 to 12 percent in 1993; a policy of allocating enough reserves against non-performing loanswas implemented; and in 1993 DBM posted an annual profit of Rs 49 million (after allocation tobad-debt reserves and before tax), on Rs 700 million of net worth, which allowed a Rs 40 millionallocation to a general reserve. The amounts and relative importance of government-subsidizedloans are limited, and most DBM lending activities are at market rates and self-supporting.During 1992-93, the main sources of new funds for DBM lending operations shifted from foreignlenders to local savers. In the past, several international lenders played an important role in DBMfunding (and still provide the major share of DBM sources in the 1993 balance sheet). Althoughseveral such lenders are offering DBM additional long-term loans, DBM finds it difficult to lendto its borrowers foreign currency loans, due to exchange risks. It has, therefore, shifted agrowing percentage of its operations to local currency loans financed from local sources -- mainlyfixed-term deposits. These grew more than four-fold in two years to equal 30 percent of all DBMdebt by mid 1993.


6.72 With its improved performance, the DBM could become a major player in the creation ofan active bond market. To do so, it should rely less on deposits (which create a mismatch ofmaturities, as deposits are for much shorter terms than the loans), and move to the issuing oflong-term bonds. It could do so with some innovation by using adjustable interest, as all loansalso carry an interest adjustment clause. One caution is in order, however, with regard todeposits. DBM is not presently under BoM supervision, nor does it have to comply with reserveand liquidity regulations. Therefore, the terms under which it is allowed to accept deposits shouldbe limited to large amounts for relatively long periods, to avoid unfair competition with thecommercial banks.

Housing

6.73 Loans are provided by a variety of institutions, including insurance companies andcommercial banks, which cater mainly for high- and middle-income households. MHC is the mainpublic sector agency housing finance, and the provider of subsidized financing to low-incomehouseholds. Its total portfolio (Rs 1.5 billion as at June 1993), makes it an important player in thefinancial market. MHC lends to low-income households at subsidized rates and to middle-incomehouseholds at market rates. Middle-income households account for one third of the borrowers(which total more than 10,000), and for about half the outstanding loan portfolio. The lendingactivity is financed mainly from long-term loans from institutional investors, including theNational Pension Fund, which is the largest single source, and a saver-borrower scheme underwhich the public saves and borrows at favorable terms for housing purposes. MIHC has hadthrough the years a high rate of collections on its loans, in all categories. This performancenotwithstanding, improvements are necessary in MHC's operations.

6.74 First, the financial relation with the government should be made more formal, with cleardefinition of responsibilities. Currently, MHC borrows at market rates and makes subsidizedloans to low-income borrowers under government policy. The subsidy element in these loans iscovered from MHC margins on non-subsidized loans and annual government grants. There is,however, no long-term legal commitment by the government to MHC on the level of the grantsand the certainty of the transfer. Without a legal commitment by the government to cover theinterest differential, MIHC is carrying a very large contingent liability, which would prevent it fromissuing tradable bonds. With an interest subsidy through the whole period of loan repayment, thegovernment is taking upon itself a commitment (which is now implicit, but should becomeexplicit) to provide an annual subsidy to MHC. A better alternative would be to provide thesubsidy explicitly as an immediate grant, expressed in percentages of the total housing loan. Theamount to transfer would be based on calculating the monthly payment which low incomehousehold is expected to pay, calculating the amount of loan that can be provided based on these


monthly payments, and making the difference between this amount and the amount of the loan14

that is now provided, at the subsidized interest rate, a grant.

6.75 Such a method would have at least three advantages. First, all MHC loans would carrythe market interest rate and no contingent liability would be created. Therefore M-C could raiselong term funds by issuing bonds to be traded on the SEM. Second, all the governmentcommitments to provide subsidies would be budgeted and disbursed at the initial stage, with nohidden commitments. Third, the government could adjust its policy on low income housingannually, based on general budgetary conditions, social needs, and the conditions in theconstruction industry (to avoid large fluctuations in the demand for construction work which maycause price increases and bottlenecks, with economy-wide implications).

6.76 The leasing of equipment has been available for several years from one company -- theMauritius Leasing Company Ltd. (MLC), which was created by the largest commercial banks andin which SIC and DBM participate. Still, leasing is marginal in the provision of finance; the totalamount of leases outstanding is relatively small -- less than Rs 200 million in mid-1993. A numberof innovations could make leasing a more effective tool for financing smaller companies and start-ups.

6.77 The first would be a reform of the tax treatment of leases. Under current practice, all taxbenefits (depreciation, including accelerated depreciation, and investment credits) accrue to thelessee under a leasing contract. Further, the interest element of the lease payments are consideredas part of the original investment for the purpose of computing the investment credit (thearithmetic sum of all lessee payments for the whole duration of the lease is considered as

investment ). Such a system makes leasing highly attractive to companies with high taxableprofits, but of little help to start-ups, and companies at the initial stages, with low levels of taxableincome. The change would leave to the lessor and the lessee the decision as to which of themwould benefit from the tax benefits of the depreciation and investment credit. Small companies,start-ups and other enterprises with no tax liability could then borrow at a lower interest rate, as

14To provide a numerical example, let us assume a 20 years loan of Rs 250,000 provided at the subsidized

rate of 6.5 percent. The monthly payment is Rs 1,864. The same monthly payment will service a loan (for sameduration) of Rs 164,000, at 12.5 percent, thus a subsidy of 6 percent per annum for the interest differential will besubstituted by a one time grant of 34.4 percent of the loan amount.

15If a machine with an original value of Rs 10,000 is leased for 5 years (60 monthly payments), with a 10

percent down payment, zero residual value and 16 percent interest, the initial payment will be Rs 1,000,followed by 60 monthly payments of Rs 219. The total of all nominal payments is 1,000 + (219 * 60) = Rs14,140. The lessee enjoys an investment tax credit for Rs 14,140 instead of for Rs 10,000.


the lessors could obtain the tax benefits and deduct them from their tax liabilities. When taxbenefits accrue to the lessors, banks and other financial institutions will benefit from offeringleases. As an additional element in the reform of tax treatment of leases, the current practice ofrecognizing interest payments as investment for tax purposes should be abandoned; only the valueof the leased equipment should be accounted for.

6.78 The second change would open leasing to more institutions. That would require theabolition of the requirement of a special license. All commercial banks, DBM and any otherfinancial institution licensed to provide loans (see discussion below regarding the licensing of non-bank financial institutions), should be allowed to provide leasing as one type of financing.

6.79 No Venture Capital Funds (VCF) are presently active in Mauritius. In 1992, theGovernment appointed a task force on the subject, which recommended the establishment of aVCF, with incentives provided by the government (with 30 percent of the investments in the fundcharged against income tax over three years, as in all investments) and a special low corporateincome tax on the VCF itself). The initial idea of a government-sponsored VCF has given way toone of joint public-private effort in which the private sector predominates. Accordingly, privateinvestors are currently leading the process of establishing such a fund.

6.80 Once a VCF is operational, the government will have a counterpart with whom to discussthe fiscal issues important for the success of a VCF. But the principles established should later beapplied to all potential investors, to create a large number of investors in ventures, both in theform of VCFs, or in the form of direct investments of companies in start-ups and smallenterprises. The main taxation issues that should be thoroughly studied are the equal treatment ofcapital gains and capital losses, and avoidance of double taxation of individual investors and theFunds through which they invest.

6.81 One thing in common to all areas of financial and capital markets examined above is theneed for the relevant institution to obtain a license for their operations. This prescription is basedon a general licensing law, with no criteria for the authorities to decide if a license should begranted or denied. The authorities recently decided to set up a nonbank licensing/supervisionagency, and the relevant legislation or charter is being prepared. The following are usefulguidelines for the terms of reference of such an agency.

6.82 First, the proposed agency should allow all types of financial intermediation, exceptcommercial banking. The approach should be to allow many players to compete on a levelplaying field, and to avoid too much specialization which may be expensive and restrictive in asmall economy. Licensing should be used mainly to prevent people with criminal record and withno financial means from entering the financial sector. Second, it should limit access in the area of


taking of deposits from the public. The fact that the government will take no responsibility forsuch deposits should be made clear, to avoid any later pressure on the government to bail outbankrupt institutions. Third, the government should insist on full disclosure -- on any loan, lease,hire-purchase or installment sale, as well as deposits, issue of bonds or CDs, the effective interestrate should be stated. This is of greatest importance when small borrowers or savers are involved,as they cannot calculate the effective rate of interest they are paying or getting. Reporting shouldbe kept to a minimum, mainly to supervise the compliance with regulations intended to achievegood conduct among institutions. Finally, the new agency should encourage competition in allareas of financial services, by allowing financial intermediaries to provide a large variety offinancial products and services.


7. TECHNOLOGICAL CAPABILITY

7.1 Mauritius's rapid growth has been based more on increasing primary and intermediateinputs than on technical efficiency. Our empirical results show near-zero contribution by technicalefficiency to the growth achieved during 1972-87. With the shortage of labor, there is need toraise the contribution of technical efficiency to future growth by a more determined push towardsthe international best practice in the various sectors. This would require a concentrated effort onthe acquisition, diffusion and use of modern technology (that raises physical productivity as wellas enhance quality, design and market response times) as well as in the area of upgrading humanskills.

Technoloey

Technology Acquisition

7.2 While Mauritius cannot overlook any of the standard avenues for the acquisition ofmodern technology, foreign direct investment (FDI), transfer of non-proprietarytechnology/information by clients, the acquisition of new equipment and reverse engineering, andknowledge acquired by returning nationals are likely to be more feasible conduits than technologylicensing and domestic R and D. Most of the technology acquired to date came through FDI inthe EPZ sector. Recent declines in the level of FDI and imports of capital goods both point to aslowdown in the effectiveness of this source of technology acquisition.

7.3 In terms of gearing up for a reversal of this trend, the continued maintenance of a soundmacroeconomic environment and a stable and predictable regulatory regime would permit thecontinuation of foreign direct investment, with the added value of diffusion through imitation ofpreviously proprietary knowledge. Closely related is the transfer of technology embodied inimported equipment for a sector such as textiles where new producers replace the old. Acomparable situation may serve to transfer to Mauritian producers knowledge held by othersuppliers clients in search of standardization, higher quality and lower cost. These informalsources are, however, likely to diminish in importance as the country goes up the productspectrum. Finally, nationals training or working abroad should be seen as a potent medium foracquiring modem technology.

Technology Diffusion

7.4 Technology diffusion allows superior techniques to spread from one firm to another. Thediffusion takes place through formal contracting relationships as well as by informal contact. In


Mauritius, some subcontracting occurs within the EPZ sector (through cut, make and trimarrangements), but very little takes place between the EPZ and non-EPZ sectors. The transfer(through sale) of equipment from one firm to another is also an avenue for diffusion. This hasalso served as a conduit, albeit limited, when failed firms have sold their assets. In generalthough, more can be achieved through more formal efforts at diffusion of technology, including

16through the use of industrial standards, metrology and adherence to quality.

7.5 The Mauritian Standards Bureau (MSB) formulates standards and provides metrology,certification, testing, quality control and testing services. It operates a certification program --MAURICERT. While MSB is a member of the International Standards Organization, it is onlynow moving towards adoption of ISO 9000 Series. A metrology division of the Ministry of Tradeand Shipping is in charge of enforcing weight, length and volume measures. Difficulties in theperformance of these functions arise from limited facilities and staff strength compared to thescope of the assignment. With limited staff and one laboratory to cover measuring instruments insome 15,000 premises, MSB is unable to fulfill its mission on metrology. Similarly, itsperformance in testing is hampered by the use of obsolete equipment and limitation to textileproducts. Finally, even though MSB provides consultancy services for quality control andindustrial the absence of the strategic use of standards for exports remains a shortcoming. Manyof these issues should be addressed, including through the implementation of the metrology,standards, testing and quality (MSTQ) component of the Bank-supported Technical Assistanceproject referred to above.

Technology Adaptation and Development

7.6 As a small country and a starter where world industrial standards are concerned, Mauritiuscannot expect to be at the forefront of technological innovation. Beyond assimilating importedtechnology, the next step would be the adaptation of imported techniques. As at present, thereare few instances of adaptation beyond limited reported cases attributed to expatriates.Nevertheless, some research and development activity would be desirable especially in the twoinstitutions capable of such effort -- MSB and the University of Mauritius (UoM).

7.7 Agriculture (sugar in particular) is one area where Mauritius has built up significant localexpertise for research and technological adaptation. As the Food and Agricultural ResearchCouncil (FARC) has shown, there is scope for putting the expertise to use in adapting anddiffusing agricultural technology. The FARC has been able, with modest investment, topropagate imported elite plant material for distribution among the agricultural community.

16These issues are dealt with in greater detail in the report entitled Mauritius: Technology Strategy forCompetitiveness (Report No. 12518-MAS), World Bank, December 1993.


Human Resource Base

7.8 Mauritius has made impressive progress in its educational system since independence. Ithas all but achieved universal primary education, with 97 percent of the 6-1 1 year age groupenrolled, and education is free at all levels, including the university. Parents actively contribute tothe educational process, through parent-teacher associations and community involvement, and byfinancing private tuition. Despite this progress, the education system has not kept pace with thehuman resource requirements of the country's economy. Mauritius currently faces shortage of theskills that would enable the economy to move to, and keep up with, international technologicalbest practice in its industries. The causes lie in insufficient general and specialized education andtraining which, in turn, are the results of limited opportunities for secondary and higher education,in particular scientific and technological education, and the relatively low quality of the output ofmost of the institutions.

7.9 Limited capacities of secondary and post-secondary institutions have limited the numberseducated. Varying levels of access to education between urban and rural areas and between elite(public or private) and less well-regarded (predominantly private) schools have also played a partin limiting the numbers educated. As a result, the work force has a mean educational attainmentof only 6.9 years of schooling, compared with about 9 years in Taiwan, Korea or Hong Kong.Six years of primary education is still the terminal point for about one-third of children.Secondary enrollment is 56 percent, again relatively low compared with Korea (83 percent) orSingapore (80 percent), and has remained stagnant because of high repeater and dropout rates andcapacity constraints. Higher education enrolls only 3 percent (excluding those abroad) of the agegroup in undergraduate programs, compared with 12 percent and 6 percent in Korea andSingapore, respectively.

7.10 Skills produced are below requirements because of low quality of input and instruction.Three-fourths of secondary school teachers have inadequate teaching skills; the curriculum paysinsufficient attention to the acquisition of basic cognitive skills, science, and mathematics, while arigid examination system encourages memorization of facts rather than ability to analyze and solveproblems; and at the post-secondary level, programs in mathematics, science, engineering andtechnology are not sufficiently developed, and students tend to favor liberal education programs.Most private schools provide lower quality education than state schools, due to poor physicalconditions, lower-qualified teachers, and lack of specialized facilities such as laboratories andlibraries. About half of all teachers in private secondary schools (48 percent) are category Cteachers (the lowest class of teachers, without teaching diploma), compared with none in thiscategory in state schools. About 57 percent of teachers in state schools are graduates, comparedwith 19 percent in private. State schools have relatively more teachers, more pedagogical supportstaff, and more non-teaching support staff.


7.11 Higher education (offered through four tertiary level institutions -- UoM; MauritiusInstitute of Education, MIE; Mauritius College of the Air, MCA; and Mahatma Gandhi Institute,MGI) has not been planned and made to produce enough scholars in the physical andmathematical sciences. A good number of programs offered are at the certificate and diplomalevel, and many of them are vocational in nature. Degree-level programs represent only 40percent of the courses at UoM, 35 percent at MIE, 15 percent at MGI, and less than 5 percent atMCA. Among these, very few are in scientific and technological disciplines; in 1992-93, only 44percent of the students were enrolled in courses in these areas. Furthermore, the UoM hasoperated mainly as a teaching institution and its research performance has been very modest.These shortcomings in tertiary education are due to the fact that until recently, there was nocoordinating body to guide the development of higher learning and research. Operating in astrategic and planning vacuum, the institutions competed among themselves and set up programsin response to ad-hoc needs. With the creation in 1992 of a Tertiary Education Commission thissituation may be changing. Future progress will be determined by how rapidly, the Commissionmoves to spearhead the development of a strategy and a corresponding program.

7.12 Technical education has also not produced an adequate number of skilled workers. TheIndustrial and Vocational Training Board (IVTB) is conceived as a joint venture between theprivate and public sectors to support, encourage, and finance training in the private sector; andprovide a place for training for the smaller segments of the industrial and services sectors. It isexpected to operate on the principle that all training should be done as a result of demand fromthe private sector. Two factors hamper the public technical training institutions from operatingefficiently - the shortage of trained teachers and the lack of equipment and training materials.With the industrial sector developing, there is an escalating demand for technical training at thevery time that there is increasing demand from the factories for technicians. Trainers tend tomove towards industry where wages are higher than in the public sector.

7.13 Higher education can be strengthened in a number of ways. First, the UoM should adopta medium-term improvement program centered on: (i) upgrading of faculty and equipment; (ii)concerted action to raise the quality of the science and engineering faculties; (iii) development ofpost-graduate courses and research; (iv) making post-graduate courses a pre-requisite forindependent research; and (v) gradually transferring all non-degree and certificate courses to othertertiary-level institutions, such as MCA and MGI. The MCA and the MGI could eventually beintegrated into a revamped UoM (while maintaining their academic and financial independence),with efforts made to raise their standards to international levels by identifying leading experts asexternal examiners and advisers. Second, future overseas scholarships should be limited todisciplines unavailable locally and post-graduate studies, and in the case of the latter require someteaching in Mauritius on return. Third, to deal with the current difficulty of attracting andretaining qualified staff, UoM should explore the possibility of recruiting on a part-time basis


qualified people from the private sector and also consider bringing in as consultants for shortperiods qualified Mauritians in teaching, research or other activities abroad.

7.14 Other steps would be needed to raise the quality of technical education through improvingpolytechnic education in the following areas: (i) selection of students through entranceexaminations; (ii) admission of students who intend to work as technicians rather than use thepolytechnic as a stepping stone to an engineering degree; and (iii) increasing the relevance of thetraining by allotting more time to science and mathematics; improving laboratory practices; (iv)exposing student to practical industrial problems during their second and third years; and (v)improving the practical relevance of the curriculum by giving teachers time to work in industry,undertake industrial consultancies or provide industrial extension services. Finally, thepolytechnic should develop placement service and strengthen linkages with the labor market andthe IVTB to assure better matching of skills with jobs in the economy.

7.15 Even with these suggested improvements, the proposed expansion of the polytechnic atFlacq with the new campus at Rose Hill and the establishment of a non-engineering polytechnic atDroopnath Ramphul, the polytechnic system may not produce the quality technicians the industryneeds to improve competitiveness and productivity. The government should considerrationalizing polytechnic education by gradually transferring the diploma programs of theUniversity of Mauritius to a new post-secondary polytechnic institute which would take in HighSchool Certificate (HSC) graduates and provide training in information technology and computerprogramming, telecommunications, electronics, and industrial technology. This polytechnic couldalso provide training in critical non-technical areas. The proposed post-secondary polytechniccould also train teachers for the Lycees Polytechniques.


8. INFRASTRUCTURE

Emerging Capacity Constraint

8.1 Although past rapid growth has been accompanied by improvement in infrastructure, thishas not been enough to avoid the emergence of capacity constraints or feelings about inadequatequality in most areas: transport (including the port and airport), energy, water supply, health andeducation. In road transport, the road network of 1831 km represents a fairly high density (0.98km per sq. km. of territory) and a high proportion is paved. But it has problems of alignment anddrainage, and has witnessed growing congestion. The alignment problem pertains to those roadsthat were initially agricultural tracks and have retained some of the earlier characteristics evenafter resurfacing. Secondary roads that are between fields are narrow and lack proper drainage.Congestion has become a problem in the main business districts of Port Louis and PlainesWilhems, especially during peak hours.

8.2 There is also a looming capacity constraint at the port. Over the period 1987-94, trafficat Port Louis grew at an average rate of 5.6 percent per annum. Containerized traffic grew fasterthan the rest, at 10 percent. In 1994, it accounted for about 25 percent of the total. Over thenext decade, the growth rate of total traffic is projected to decline marginally to 5 percent, butcontainerized traffic is expected to continue to grow faster than total traffic. This trend of rapidgrowth of containerized traffic runs against capacity and efficiency constraints. Insufficientnumber of dedicated berths leads to costly slow-down of the turnaround time for container boats.In addition, organizational inefficiency raises quay occupancy time. The delays suffered imposecosts on the users of the port facilities. A new port project planned to begin in 1996 will addresssome of these problems.

8.3 There are similar constraints in the electric energy sector. In 1993 peak demand was 170MW, compared with a firm generating capacity of 179 MW. Assuming real GDP growth of 5-6percent and improved energy pricing policies, peak demand could rise by about 8 percent perannum and attain 292 MW in the year 2000. The system may experience shortage of capacity asearly as 1995 or soon thereafter, which gives urgency to the resolution of the capacity issue. Forthe medium term, decisions already taken or in progress have by and large defined the power-generating system one based on diesel and bagasse-cum-coal power plants. The remaining issuesare the timing and sequencing of units to be installed.

8.4 Similar capacity constraints afflict the education and health sectors. In both cases, theproblem takes the form of services being offered in parts in sub-standard facilities. In generaleducation, the stock of school infrastructure at the primary level is of good quality and of the


standards are broadly similar between urban and rural areas. In the secondary schools, however,some 20 percent of the pupils attend government schools where the facilities are good, andanother 20 percent go to private schools with equally good infrastructure. The remaining 60percent attend private schools where investments have not been sufficient in either quantity orquality. As regards the public health sector, much of the capital stock is old and inadequate.Infrastructure standards need to be upgraded especially as regards buildings and general civilworks. Comparable higher standards are needed in the installation, repair, maintenance,replacement and technical testing of equipment, as well as the development of bio-engineeringservices. An Action Plan currently being prepared will propose a framework to address thesedeficiencies.

8.5 Compared with the HPAEs, Mauritius is reasonably well endowed with infrastructure. Inthe second half of the 1980s (for which we have comparable data), it had a better road densitythan three of them on which we have data; its households were better supplied with electric powerand safe water than in all but two cases (Korea and Singapore); and it had better telephone servicecoverage than all but three cases (Hong Kong, Korea and Singapore). (See Table 10 ). Theseindices do suggest that perhaps Mauritius should be as concerned about managing the demand forinfrastructure services as about additional supply, if not more. This is a central point, ascongestion may result as much from overstimulated demand for underpriced servicesstraining supply as undersupply stretched by rational demand.

Table 10. Mauritius and Comparators: Infrastructure Density

Paved Road Households with Population with TelephoneDensity (km per Electricity Access to Safe Mainlines

mio persons) 1988 (%of Total) 1984 Water (per 1,000(% of Total) persons)

1990Mauritius 1579 93 95 56

Hong Kong 236 100 434Indonesia 160 14 51 6

Korea 100 93 310Malaysia 64 78 89Singapore 98 100 385Thailand 513 43 77 24Source: World Bank, World Development Report, 1994.


Planned Response throueh the Public Sector Investment Prolram

8.6 The current three-year Public Sector Investment Program (PSIP), which covers the period1992-94, indicates part of the program to alleviate the constraint. Its expenditure program forinfrastructure is about 10-15 percent of GDP annually. The same levels would probably bereflected in a new program covering 1995-97. This is 2-3 times the level of central governmentcapital expenditure (5 percent) projected in our macroeconomic outlook. If the public sectorwere to attain these levels of capital expenditure, the parastatal sector would need to invest about5-10 percent of GDP annually.

Augmenting Supply

8.7 The comparison of Mauritius's infrastructure density with those of the HPAEs indicatesthat, even now, Mauritius is reasonably well-endowed with infrastructure. The upshot of this andthe reality of capacity constraints being felt is that, in the future, improvement in the managementof the demand for infrastructure services should rank as high as additions to the stock. Thismakes the modality of the provision of infrastructural services an important issue in the futurestrategy. Affordability is another issue. Some 75-80 percent of the financing of the 1992-94program is to be provided by foreign loans. This amount may prove to be excessive depending onthe terms of the loans.

8.8 Given the amount of effort required, it would be well to consider all the options availablefor augmenting supply and managing the delivery of the services. The way forward is to focuspublic resources on areas requiring public action and involve the private sector in others wheremarket conditions lend themselves to the private provision of the required services. The variousforms of public-private collaboration comprise private ownership and operation, public ownershipwith private operation, public ownership and operation and community and user ownership.

8.9 The most straightforward way to involve the private sector in the provision ofinfrastructure services is through private sector ownership and operation. This can be achievedeither through the divestiture of assets already in public hands or by direct investment by theprivate sector in new facilities.

8.10 Another option is public ownership with private operation. This could be achieved by thelease of public assets to the private sector under either an ordinary contract or concession. In thefirst case, the lessee would operate and maintain the assets, while under the second the lesseewould also invest in additional capacity if needed. The latter form covers the case of build-operate and turn-over (BOT) operations. Both transport and power installations lend themselves


to this type of treatment. This option may be worth considering for the airport, the rapid transitlink between Port Louis and the outlying areas, and blocks of power installations.

8.11 Even in the more traditional case of public ownership and operation, it is possible toenhance efficiency by applying commercial principles. Managers would be given full control overoperations and be held accountable in return through performance contracts. The managerswould follow sound business practices and the entities would be subject to the same regulatory,labor and accounting standards as in private companies. Tariffs would be set to cover costs andany explicit subsidies would be given to cover sales made at prices influenced by socialconsiderations.

Managing Demand

8.12 In all these areas, the general principle should be one of moving to pricing policies thatgive consumers of the services in question proper signals about scarcities. This approach woulddiscourage wasteful consumption of the services of the installations, ensure the financial survivalof the supplier enterprises, and provide the incentives that could entice private capital into theproduction of infrastructure services. The need for improved pricing policies for inducingefficient use of infrastructure services can be illustrated by the case of the energy sector,specifically electricity.

8.13 The basic tariff structure for electricity has remained unchanged for more than a decade.Tariffs do not reflect the cost structure of the supply system of the Central Electricity Board. Inparticular, the capacity charges are substantially below the cost of servicing the loads at peaktimes. The tariff structure involves a variety of cross-subsidies and discriminatory features whichare difficult to justify on economic grounds. An example is the difference in the structureapplicable to companies depending upon whether they are in the EPZ or outside it, instead of a

17

distinction between companies on the basis of their load characteristics.

17Mauritius: Energy Sector Review (Report No. 3643-MAS), World Bank, November 1994.


9. POVERTY ALLEVIATION AND SOCIAL EQUITY

9.1 Several social changes have occurred as a result of the rapid economic growth, thestructural change accompanying it, and social policies implemented by the authorities. Some ofthese changes represent improvements in social well-being. Economic opportunities expanded,previously unemployed labor found employment and a large segment of the female labor forcewas brought into the workplace; incomes rose and income distribution became less unequal; andthe number of the absolute poor fell. Living conditions improved as well. The availability ofamenities improved and many more than previously are able to cover their basic needs moreeasily. However, as with the economy at large, past progress is a launching pad for further effort.This includes action to address social challenges of rapid modernization. This section examinesthe past progress and the challenges, with a view to suggesting elements for a future strategy onsocial issues. Our analysis has relied principally on census records from 1975, 1980/81 and1991/92. Accordingly, our tracking of social conditions spans an eighteen year period, 1975-92.

Income Growth, Equity and Poverty Alleviation

9.2 Over the period 1975-92, per capita income rose fourfold in current dollars (from aboutUS$ 700 to over US$ 2,800). The rapid growth in income improved living conditions for mostMauritians with a particularly significant impact at the lower income level (See Appendix B:Poverty and Social Expenditures). In 1975, the least well-off 40 percent of households accountedfor 16 percent of total personal income, the middle 40 percent accounted for 36 percent and thetop 20 percent received 48 percent. By 1991/92, the bottom 40 percent had raised their share to19 percent; that of the middle 40 percent had risen slightly to 39 percent; and the top 20 percentsaw their share fall to 42 percent. As a result, the Gini index of inequality fell from 0.42 to 0.35.(Table 11).

Table 11: Mauritius: Distribution of Household Income

Households 1975 1980/81 1986/87 1991/92Bottom 40 16 14 16 18Middle 40 36 36 38 39Top 20 48 50 46 42Poverty LineCurrent Rs/month 461 962 1,421 2,168Gini Index 42.0 44.5 39.6 35.5Source: Household Budget Survey, various: issues; Staff estimates.


9.3 The general prosperity undoubtedly lifted a large segment of the population out ofabsolute poverty. In the absence of an official poverty line, an investigation of the extent ofpoverty alleviation has to rely on proxies. Adopting that approach, we have used a presumptivethreshold equal to one-third of average household expenditure. In current prices, this comes toRs 461 in 1975, Rs 962 in 1980/81, Rs 1,421 in 1986/87 and Rs 2,168 in 1991/92. In 1975, 40percent of the households were below the presumed poverty line, by 1991/92, the proportion hadfallen to 11 percent. In other words, almost 30 percent of the households rose above the newpoverty threshold during the eighteen-year period. The poverty gap (the gap between averageexpenditure of the population below the poverty line and the poverty line itself, expressed as apercentage of the poverty line) fell from 4 percent to 2.5 percent.

Table 12: Mauritius: Selected Social Indicators

Middle Income1990

1971 1983 1992 Lower UpperInfant Mortality per 1000 Live 52 14 14 51 45BirthsLife Expectancy at Birth -Males 61 64 66 63 65Life Expectancy at Birth -Females 66 72 73 67 71Inhabitants per Physician 4,107* 1,300 900 2,850 640

Daily Caloric Supply per Capita 2 ,351 a 2,701 2,897c 2 ,768 d 2 ,98 7dNotes: (*) This figure is for 1970, and excludes medical assistants. 1983, 1990, and 1992data all include medical assistants. (a) 1969-71; (b) 1979-81; (c) 1988-90; (d) 1989.Source: World Development Report, 1992

9.4 In order to gauge the reasonableness of our presumptive poverty line, we examined thecomposition of expenditure for evidence of levels at which basic needs are met. The results showthat it is reasonable to use one-third of the average household expenditure as the povertythreshold. The proportion of household income going for food peaks at about Rs 900/month(1991-92 prices) and drops significantly thereafter. In addition, the proportion of expendituregoing for housing and medical services peak much earlier -- at about Rs 600/month -- anddeclines thereafter. For its part, the proportion spent on clothing declines monotonically till itbottoms out at Rs 1000/month. These patterns in the behavior of expenditure shares show thatthe income levels used as the poverty threshold are about sufficient in each period to cover themost basic needs.


9.5 In terms of location of income earners, urban areas have greater disparity than either semi-urban or rural areas. In 1991/92, the poorest 40 percent of urban area households received 17percent of the income, the middle 40 percent accounted for 38 percent, and the top 20 percentreceived 45 percent. In semi-urban areas, these proportion were 19 percent, 41 percent and 40percent, respectively. Among rural households, they were 19 percent, 40 percent and 41 percent,respectively. The Gini indices of 38.2, 35.8 and 35.0 show that income distribution is less skewedin the semi-urban and rural zones than in the urban area. The disparity is strongest at the lowestlevel. Of the 2 percentage points separating the poor urban households from the semi-urban andrural households, one percentage point separates them among households sharing 5 percent orless of the income, and the remainder is spread over the 6-20 percent income range. Furthermore,the headcount indices show that the proportions of the population below the presumptive povertyline (equal to one-third of the average household income) is 12 percent in the urban area, 10percent in the semi-urban zones and 9 percent in the rural areas. With some 56 percent of thepopulation in semi-urban and rural areas, it would appear that the lower disparity of incomes inthese areas favorably influence the national level indicators. Appendix B of the report presentsmore details on poverty and the role of social expenditures.

Social/Living Standards

9.6 Mauritius made important strides in the quality of life. Its indicators in this regardcompare favorably with those of upper middle-income countries. In 1983, life expectancy was 64years for men and 72 years for women. One decade later, it rose to 66 years for men and 73years for women. As reflected in Table 12, Mauritius's current (1992) infant mortality rate of 14per 1,000 is less than one-third the average level among upper middle-income countries (1990); ithas less than one-third the number of inhabitants per physician characteristic of the lower middle-income group; and its caloric supply per capita compares favorably with that of upper middle-income countries.

9.7 Housing is one item that ranks very high among social priorities. Its importance isprobably linked with the population's experience over the years with the devastation caused bycyclones. In the past two decades, there was good progress on this front, in terms of physicalavailability as well as quality. In 1990, there were 208,163 occupied housing units on the islandof Mauritius -- a 13 percent growth over the level of 1983 as against a 6 percent growth in thepopulation. In the urban areas, housing units grew at 11 percent compared to a populationgrowth rate of 4 percent, while in the rural areas there was an increase of 14 percent for apopulation that increased by 7 percent.


Current Social Challenees

9.8 Notwithstanding the progress made in several areas over the past two decades, Mauritiusneeds to continue the social policies that have worked as well as meet new challenges. Some ofthe unfinished agenda and the new challenges are in the areas of housing, human capitaldevelopment, employment, and family life.

Housing

9.9 In spite of the progress reported above, there is a widespread feeling that there is ashortage of affordable housing. The question of adequacy of housing supply has been addressed

18by a Task Force on Housing in 1991 . Their report arrived at "shortages" of 13,416 on the basisof excess of households over housing units and 36,175 units on the basis of individuals per room.These estimates are not very useful for policy purposes as they are measuring demand notnecessarily as effective demand (backed up with the ability to pay) and are observing supply in arepressed market (owing to rent controls that have kept the stock from growing).

9.10 The estimate based on the number of individuals per room overstates the case to theextent that it overlooks changes in living arrangements towards more intensive use of livingspace, for sound sociological reasons. Over the years, rapid growth in the proportion of nuclear

19but smaller families has been accompanied by an increased trend towards families sharinghousing units. At the same time, there was a reduction in the number of people per household. In1972, there were near-equal proportions of households with 3, 4 or 5 people. By 1990, the shareof households with four individuals had almost doubled and the share of households with eight ornine individuals almost halved. These changes reflect a natural trend of households adapting tothe socio-economic phenomena accompanying growth and modernization. Public officials shouldtake this willingness to adapt into account in setting housing policy and create an environmentwhich favors choice and flexibility.

9.11 The approach to meeting the social concerns in housing would be to free market so as tohave supply and demand adjust. The Rent Control Act of 1964 has prevented such a free

IsReport of Task Force on Housing, Government Printer, 1991.

19A neucleus family is defined as a parent or parents with unwed children. A household consists of a group ofindividuals who reside in the same housing unit and may be related or not but share at least one mealtogether.


interplay of market forces. The National Economic Development Council has taken up the issueof how to reform the property market. Its deliberations have highlighted the economic and socialinefficiency of the controls. It should have the courage to recommend their abolition. When thecontrols are lifted, the market would take care of the need of a large segment of the population.The State could then concentrate on designing and targeting assistance on the poor as part of itsnormal poverty alleviation program.

Unequal Educational Opportunities

9.12 In both the general education and the vocational training schemes there are issues to beresolved to make education more inclusive and more reliable in fulfilling the future human capitalneeds of the economy. Two key ones are: (i) low pass rates on critical general education examsthat effectively bar many students from pursuing their chosen educational careers; and (ii) lowesteem and, hence, participation of students in vocational training.

9.13 The government provides the bulk of primary and secondary education, and all of tertiaryeducation. Progression from one level of education to the next is conditional on passage ofnational exams, which serve as a quality control and a filtering mechanism. Primary educationconsists of six grades or Standards. At their completion, students sit for the Certificate of PrimaryEducation (CPE) examination, which is a requirement for the next level of schooling. Secondaryeducation consists of seven extra levels or Forms. At the end of Form V, students must pass thesecondary School Certificate (SC) in order to attend the last two years of secondary school. Atcompletion, students qualify for the tertiary system by obtaining the Higher School Certificate(HSC). Currently, primary education is mandatory in Mauritius. In 1994, a decision was made toinclude the first three years of secondary education as mandatory schooling.

9.14 The government also sponsors vocational training under the aegis of its IndustrialVocation and Training Board (IVTB) which organizes its own training and also supervises thatprovided by the private sector. For students with a partial pass in the CPE (i.e. at least Math andeither English or French) the IVTB provides a Pre-Vocational Training (PVT) program of generaleducation, language training and some vocational skills. At the next level of IVTB activities,Vocational Training Centers proper offer a range of fields, varying from carpentry to automechanics. Entrance requirements are 16 years of age and either completion of Form III insecondary education, or a PVT certificate. Private sector institutions -- Private TrainingInstitutions (PTIs) -- and companies also offer vocational training in these and other areas.

9.15 The testing and certification process are a concern for many. Although the purpose of theexaminations is to verify accomplishment of one course of learning and readiness for a subsequentlevel, they are seen more as a filter, registering a negative verdict on most terminal students andturning many hopefuls away from pursuing their educational goals. The CPE is the first filter


encountered by students. The failure rate is high and some students take the exam for 2 or 3times. Wealthier students hire tutors, while poorer ones rely strictly on the public school system.Others drop out of the system, either because of age or employment (for age 15 years and older)considerations, and attempt to pass it independently as private students. In 1992, the overall passrate was 59.5 percent. It included students at their first sitting (61.8 percent pass rate), those atsecond sitting (59.7 percent pass rate), yet others sitting as private examinees (31.9 percent passrate). The Mauritius Examination Syndicate estimates that about 70 percent of each primaryeducation entering class cohort are eventually successful at the CPE, although some may requireas many as three trials.

9.16 Since a failed candidate winds up his general education (except for the possibilities offeredby the PVT), the human capital and social equity implications of this situation are important. Thequestion facing the policymaker is whether the system is so poor as to produce so many failuresor whether the filter is excessively restrictive.

9.17 The fact that there are regional patterns means that improvements are possible throughextending to the less fortunate regions the conditions that prevail in the more successful ones.The pass rate in rural areas is significantly lower than the average pass rate in urban areas. Since1987, the regions of Port Louis and Plaines Wilhems have had the highest success rates, averagingabove 60 percent since 1987. At the other end of the spectrum, Black River has had average

pass rates of around 40 percent over the same period.

9.18 Secondary education poses similar challenges as primary education. A large number ofhopefuls repeat classes throughout the duration of their secondary education, and an even greaterproportion repeats classes prior to major exams. The repeaters rate is in the 4-6 percent range forthe first three years of secondary education. It then jumps to 20-30 percent over Forms IV-Vwhen students prepare for and sit the SC exams. The rate is relatively low again in Form VI-Lower and jumps prior to the HSC in Form VI-Upper. The loss, or drop-out, rates show similarpatterns throughout secondary education. There is a high loss rate after Form I, and then the ratedrops and picks up consistently till Form VI-Lower. The SC pass rate was 62.9 percent in 1992and averaged 63.4 the five years prior to that. The HSC pass rate was 53.7 percent in 1992 andaveraged 55.7 the five years prior to that. As an example of its impact, of the cohort that enteredsecondary school in 1986 only approximately 33.5 percent obtained the HSC. The troublingfeatures of these statistics are the high repeater rates and loss rates prior to major national exams.Failure and lost opportunities to become part of a more educated class is a major source of socialdiscontent for younger generations.

20"Mauritius Social Database", Unpublished Report prepared by the Human Resources Division of the Ministryof Economic Planning and Development.


9.19 PVTs provide an alternative general education for those students who did not qualify forsecondary school, but wish to continue their training. The PVTs emphasize basic literacy andnumeracy, and the learning of languages through application in some vocational training. Eventhen they absorb only a portion of the interested population. In 1990, they absorbed 15.5 percentof the students that failed the CPE.

Family Concerns

9.20 A first issue in family well-being is the relatively high number of unsupervised births, i.e.taking place without any prior doctor's visit. This may be either due to a quantity constraintlimiting the reach of pre-natal care, or an inability of pregnant working women to get leave for adoctor's visit. Although there is a marked downward trend since 1983, the absolute level is causefor concern. A second, and related, concern is the rise in the percentage of complicateddeliveries. In 1983 35.7 percent of deliveries were considered complicated, but that figurejumped to 49.2 percent in 1992. Again, the reasons could be several. The increase could beattributed to growing relative scarcity of pre-natal care, rising stress among mothers in theworkplace or at home owing to excessive housework after a full day's work at the factory.Related to the complicated deliveries maybe the increase in the share of underweight births. Thesource of the problems could be the same. The problem deserves further investigation.

219.21 A second issue of concern to families is child care. With the gradual shift away from theextended family towards nuclear families, the problem of child care during the day becomes acutefor working mothers. In 1993, there were some 43 day care establishments. Not much is knownabout where they operate, their rates, the quality of their facilities or the training of their staff. Analternative to daycare is the day "mother system", where working mothers leave their child with aneighbor in exchange for payment. Mauritians use both of those systems, but we have nostatistical information on them. It has been reported that daycare can run as much as Rs 1000 amonth, which amounts to half a monthly salary of a woman employed in the EPZ. The proposalsbeing made on day care by the Ministry of Family, Welfare, and Women's Rights under the ChildProtection Act that constitute a useful starting point.

9.22 A third issue of interest to the policy maker is the weight of household chores on thewomen who have moved into formal employment outside the home. In other countries, part ofthese pressures have been alleviated by the use of household appliances. In Mauritius the use ofsuch appliances has been relatively limited. Attempts in the past few years to expand the use oflabor-saving devices include a reduction in the import duty on appliances -- a measure stronglysupported by the Ministry of Women's Rights, Child Development and Family Welfare.

21This section benefits from a Report "Survey on Women's Role in Economic Activity", prepared by the HumanResources Division of the Ministry of Economic Planning and Development.


9.23 Naturally, the use of these appliances will grow only with the ability to afford them. Atpresent, prices of electrical appliances seem high compared to the daily wage. For instance, smallto medium sized washing machines of European construction were priced about Rs 16, 000(equivalent to 43 percent and 34 percent of 1992 average annual wages in agriculture andmanufacturing, respectively). Although the EPZ's as well as the sugar industry's labor welfarefunds offer interest free-loans for the purchase of labor saving appliances, others must rely onhire-purchase for which the effective interest rate was until recently some 33 percent for a 24-month payment schedule.

9.24 One other reason for the low demand in washing machines could be lack of or inconsistentwater flows to most residential housing units. In the previous section we saw that plumbingseemed to be a major problem, as often running water is not available inside the unit.

Uneven Facilities in Family Planning

9.25 The government's current population policy is to maintain the Gross Reproductive Rate(GRR) at replacement levels. Components of this goal are (i) to reduce the fertility rate ofwomen under the age of thirty and over the age of forty by 10 percent by 1994, (ii) to bring thepre-natal mortality rate down from 28.7 in 1992 to 20 in 2000, and (iii) to reduce the maternalmortality rate from 0.4 in 1992 to 0.2 in 2000. The instruments the government has at its disposalare essentially information, education and communication (IEC) and the free distribution of a fullrange of contraceptive services at decentralized distribution sites as well as comprehensive freegynecological and obstetric services.

9.26 Against this background, two trends in the areas of conception and fertility give cause forworry. First, it is known that the number of new acceptors of family planning methods hasdeclined steadily since 1985. In 1985, new acceptors numbered approximately 12,700, while in1992 there were only 12,000. In the latter year, only an estimated 32.1 percent of the femalepopulation between the ages of 15-49 were using family planning methods. Second, theMauritian Family Planning Association (MFPA) has estimated that 9,000 pregnancies a year occurto girls and women between the ages of 14 and 24. With the average age of marriage for womenwas 23.8 in 1992, there is a cause for worry of rising unwanted pregnancies. Also, during 1985-92, adolescent fertility (measured as total number of children per female during active child-bearing years) rose from 37 per thousand in 1985 to 44 per thousand in 1992.

9.27 Given the low rate of population growth in Mauritius (0.8 percent per annum), and giventhat abortions are illegal, the figures in the preceding paragraph raise the question of the volumeof probable induced abortions. Estimates of the number of abortions vary from up to 1,000 illegalcases (by the MFPA) to an average of 3 or 4 per woman by the women's movement, Muvemen


Liberasyon Fem (MLF). Other MFPA sources indicate that since 1968 more than 3,000 cases ofhospitalization and more than 475 deaths have resulted from abortions. Evidence is alsosupported by the existence of a range of market prices, as confirmed by two sources. The MLFcites prices in the range of Rs 200-2000 for a range of procedures depending on the process andwhether or not anesthesia is used. The Population Council, although clearly indicating that

22abortion is illegal in Mauritius, quotes prices in the range of US$ 33-197 for 1989. While priceis no indicator of volume, the range of prices cited indicates that a broad market exists.

9.28 The problem is that a large share of Mauritian women routinely subject themselves todangerous and sometimes life-threatening procedures. The World Health Organization hasestimated that at least 20 percent of maternal deaths occur each year due to illegal abortions,about half of which occur in South and Southeast Asia, and a just smaller proportion in sub-

23Saharan Africa. Mauritian women, especially those of limited financial means, are in the high-risk category judging from this information. It has been reported that the wealthier Mauritianwomen can afford to fly to La Reunion for abortions, where the practice is legal. PoorerMauritian women are limited by the island nature of their country and are essentially forced tocarry a larger share of the burden. However, other than the extreme physical and psychologicalcosts placed on the female, there is a social cost of increased public expenditure on health-care tocover the cost of hospitalization resulting from complications in abortion.

Workplace Safety

9.29 One issue of growing concern to the worker is workplace safety. Industrial accidents havebeen generally on the decline in Mauritius for the past six years, thanks in part to the diligent workof the Factory Inspectorate (FI). Nevertheless, no monitoring system for air quality or ventilationwithin factories does exist. The problem can be potentially acute, in a country where 45 percentof GDP added is derived from textiles and wearing apparel. A safe workplace and a healthyenvironment are essential ingredients for high worker morale and a high level of job satisfaction.Regulations about working conditions and worker safety are governed by the OccupationalSafety, Health and Welfare Act of 1988. Currently production sites are monitored by the Fl. TheFl has a staff of 29, and is responsible for monitoring 3,178 factories, about 95 percent of whichare in agriculture, manufacturing, and construction.

22

John A. Ross, W. Parker, and Vincent C. Miller (1993), Family Planning and Population: A Compendium ofInternational Statistics, The Population Council: New York.

23Stanley K. Henshaw (1990), "Induced Abortion: A World Review, 1990", International Family PlanningPerspectives, 16 (2), June.


9.30 It appears that the Fl is understaffed for its work. Many workers consider that there is arelatively large backlog of inspection requests and that response times (time between when a callis received and when an inspector arrives at the site) are long. For its part, the Fl considers thatcomplaints made by workers receive attention as promptly as is practical. The workers'perception of inadequate attention by the FI -- whether accurate or not -- contributes to workerdisaffection and alienation.

9.31 The problem of absenteeism has plagued Mauritian society for many years. There is atendency for workers to take all their sick days as leave, and provide doctors' certificates to justifythe absences. A University of Mauritius study on absenteeism in the EPZ found that on average,out of one hundred workdays, a worker had called in sick nine of them. The rate differedsignificantly among factories, and a good deal of the variation was attributed to plant-specificfactors. For instance, larger factories had higher rates of absenteeism, as did factories whoseworkers did more manual labor (i.e. knitting and spinning versus garment manufacturing).Another determining factor was the average amount of overtime put in at the factory; factoriesthat required more overtime experienced higher absence rates. Also important was the workerturnover rate at the factory; factories with higher turnover rates experienced higher rates ofabsenteeism. And one final determinant, the frequency of payment. Plants that paid bi-monthlyhad lower rates of absenteeism than those that paid their employees on a monthly basis.

9.32 The determinants of absenteeism in the EPZ lead one to believe that workers have a lowsense of belonging in the company of their employer. To counter the tendency to use all sickleave as regular leave, some employers have tried to offer bonuses for sick-days not claimed, butthis has not brought forth the expected results. The challenge then remains to find ways to giveworkers a greater sense of involvement in the progress of companies that employ them. Indeed,education has stood in the way as older workers tend to be uneducated and cannot follow trainingseminars, implement new concepts and ideas, propose solutions. An alternative is to alter thereward structure so that workers receive either stock ownership or other forms of compensationwhich might make them feel more linked to the plant and the company.

Appendix Apage I of 24

A RMSM-X Model for Mauritius

Introduction

1. In response to an earlier request by the authorities for assistance to build a generalequilibrium analytical and forecasting model, a RMSM-X model of the Mauritian economyis being developed to support the policy agenda of the CEM. Although work on themodel is on-going, a fully operable framework based on the RMSM-X prototype nowexists and has been used for the analysis in Chapter 4. As with the prototype, theMauritian model has four components: a historical data set, a macroeconomic shell, adebt module and (an initial set of) standard tables. Further work in the months ahead willadapt the model more closely with the Mauritian economy. Still, the present form of themodel enables us to examine various economic scenarios and shed some light on theoutcomes of policy choices. This technical appendix describes the results and the analysisof medium term scenarios.

The Model

2. The original RMSM-X contains four economic agents or sectors: public, private,financial and foreign. The public sector consists of the central government. The privatesector is composed of households and official institutions outside the central government,parastatals, and non-monetary financial institutions. (The inclusion of parapublic agenciesin the private sector is a convenience dictated by the need to treat these as residuals owingto data difficulties.) The financial sector is the monetary system, consisting of the centralbank and the deposit money banks. The foreign sector represents the rest of the world.Each sector's operations are classified into a current and a capital account. The sectorsare linked in a flow-of-funds relationship in such a way that the inflow of one is theoutflow of another.

3. The model uses several price variables, in both absolute and relative terms. Thisincludes the exchange rate and its derivatives in terms of the real exchange rate and thereal effective exchange rate which are important measures of external pricecompetitiveness. While the real exchange rate affords decision-makers a framework forexamining policy options with respect for external price competitiveness, the real effectiverate (subsidy- or tariff- inclusive) adds an additional dimension for examining variations inincentives facing exports as compared with import substitutes.

4. The model has at least three solution procedures or "closures": a public sectorclosure, a private sector closure and a policy closure. The three differ according to whichvariables are exogenous or endogenous in simulations. In the public closure, values for allvariables other than those of the central government are specified ex ante and the othersdetermined endogenously; in the private closure, the paths of GDP growth, inflation, and

Appendix Apage 2 of 24

the behavior of public sector variables are specified ex ante, and the paths of private sectorvariables are derived from the model; in the policy closure the behavior of governmentpolicy variables and some in the private sector are specified ex ante and the modelgenerates paths for GDP, inflation and remaining private sector variables.

5. The private and public closures operate in a "requirements" mode. In bothclosures, the economy's foreign exchange is not constrained ex ante. The modeldetermines the additional foreign borrowing requirements after taking into account"autonomous capital inflows" including disbursements from existing loans and expectednew commitments. In contrast, the policy closure operates in an "availabilities" mode.Here, net imports are limited to the identified amounts of external financing. There is noadditional borrowing and imports adjust to respect the foreign capital constraint. Whilethese closures offer the analyst the facility for evaluating the implications for variouspolicy scenarios, in reality they should be used in such a way as to achieve convergence.Thus, various iterations are necessary for the additional foreign exchange needs of thepublic and private closures to become insignificant.

Calibratin2 the RMSM-X for Mauritius

6. Base Year. In the historical data set, figures for all four sectors are entered and theflow of funds are established and checked for consistency. We have chosen 1993 as thebase year in order to have the most complete data set possible. For some variables thehistorical data set covers the period 1992-93.

7. Trade Block. Foreign sector information required consists of the balance ofpayments (in standard World Bank format) and a more detailed trade block which containsdisaggregated merchandise trade in volume and value terms. For merchandise exportsfour commodities are retained: sugar, manufactures (made up of textiles and otherindustrial as sub-categories), cut flowers and other (comprising processed foodstuffs andfisheries). Non-factor services are essentially tourism. For merchandise imports, thestandard classifications (food, other consumer goods, intermediate goods, fuel and otherenergy and capital goods) are kept. Non-factor services are essentially transportationfreight and insurance. In the absence of hard estimates, freight and insurance are set at 15percent of merchandise imports

8. Foreign Sector. The balance of payments draws merchandise exports and importsfrom the trade block. Exports are projected by assumed growth rates, and imports aredetermined by income and exchange rate elasticities. In the policy closure the level ofimports is determined as a residual of export revenues and net capital inflows and foreignreserve changes. Capital inflows consist of official grants, net foreign direct investment,net long-term disbursements, short term capital, and errors and omissions.' In the public

'This mechanism may yield negative imports in the 'other consumption goods' category if sufficient foreign exchangeis not available


and private closures, the capital balance is adjusted by a gapfill loan to finance importsdictated by trade block assumptions.

9. Prices for both exports and imports are based on internal Bank projections for theManufacturers Unit Value Index and price levels for the G-5 economies.

10. Public Finance. Central government accounts represent the full array ofactivities through which fiscal policy is implemented. In the current account, revenues,indirect taxes, and nontax receipts are explicitly considered. In the current expenditures,government consumption (expenditure on goods and services and on wages and salaries)and subsidies for rice and flower are entered directly, as are interest payments. Theremaining item in current expenditure (transfers to the private sector) is particularlyimportant for Mauritius given the issue of future sustainability of social security andpension expenditures with an aging population. The capital account essentially containsacquisitions of fixed assets.

11. The overall deficit is financed by domestic and foreign borrowing. Since foreignfinancing is limited to existing loans in the policy closure, and government's share ofdomestic credit is limited by assumption, residual financing is obtained by the issuance ofbonds to the private sector. In the public and private closures, where foreign borrowing isnot fixed, a gapfill loan is activated to cover expenditure requirements.

12. Monetary Sector. The monetary sector consists of the central bank and depositmoney banks. The sector's accounts reflect the change in domestic credit, the size of thegovernment bond market and, given the volume of real activity, influences the rate ofinflation. The current account contains interest from foreign reserves and from privateand budget sources. Current expenditure consists of interest payments on all domesticdeposits and foreign loans. The capital account records changes in assets, foreign reservesand domestic credit, and in liabilities, i.e. money stock, foreign debt, arrears, and changesin valuation.

13. Private Sector. As would be expected, the private sector's current accountconsists of interest income, GDP evaluated at factor cost, transfers from domestic andforeign sources, worker's remittances, and profits. Current expenditure consists oftaxes, interest payments, transfers to the foreign sector and profits remittances. Thecapital account consists of private investment, lending to central government, and changesin money holdings. Financing is from foreign sources and from the government and themonetary sector domestically.

14. The activity of the private sector is calculated as a residual in two cases. First, inthe goods market, given that current output has been determined by last year's investmentand current period's ICOR, private investment is the closing factor once governmentexpenditure, private consumption, and net exports have been determined by assumptions.Second, the private sector comprises the sole buyer of government bonds. As such, theprivate sector is "forced" to buy the government bonds necessary to balance the capital


account of the government sector after existing government loans from the foreign sectorhave been considered. By this arrangement, if the government shows an overall surplusnet of the issuance of government bonds (prior to considering government bonds) it buysback bonds from the private sector.

15. Debt Module. The debt module consists of total short-term and long term debtby creditor as recorded by the Bank's Debt Reporting Service (DRS) for the base year. Itidentifies interest payments, amortization, arrears, and revaluation information for the baseyear and for projections. The information reflects the country's submission to DRS of itsdebt portfolio up to the prior calendar year, adjusted for inconsistencies. Projections takeinto account World Bank loans. New commitments from other sources are not available.This can be a problem as inflows are unnecessarily curtailed in the projection horizon.

Solutions for 1994-2003

16. The model has been run in all three closures for the projection horizon of 1994-2003. The primary analysis was carried out in the policy closure. Alternative runs weremade in the public and private closures for consistency purposes and for ensuringconvergence. The projections within the policy closure match the prescribed policy stancein Chapter 4 of the report. But they also show an outlook implying a two-monthequivalent loss in external reserves, or conversely -- as shown in the public and privateclosures -- an increase in external indebtedness with debt/GDP ratio of 44 percentcompared with 25 percent in the policy closure.

17. The three solutions or 'closures' are based on two separate types of assumptions:general assumptions which apply for all closures; and closure-specific assumptions. Wepresent the general assumptions in this section and defer discussion of closure-specificassumptions to the relevant closure section below.

18. In the foreign sector real exports for the projection horizon are assumed to growbetween zero percent per year for sugar to 15 percent for other industrial products;textiles are assumed to grow at an average annual rate of 6 percent. Foreign reserves areset at six months worth of imports for the public and private closures. On the basis of pastexperience, elasticities of demand for imports are set to reduce the resource balance to 3percent of GDP by 1998. The composition of imports is as in 1993.

19. Public finance assumptions reflect the dual objectives of fiscal discipline andefficiency (in part through further reduction of government intervention in the economyand efficient fulfillment of social responsibilities). The tax burden is assumed to declinemodestly. Direct and indirect tax rates are assumed 4 percent and 15 percent of GDPrespectively. There are no subsidies to producers or consumers. Direct transfers to theprivate sector (mainly to households) rise less rapidly than in the recent past, growing at11 percent instead of 15 percent.


20. It is assumed that monetary policy will be prudent, with credit allocation gearedtowards supporting non-inflationary private sector-led growth. It is assumed that M2would grow at 16 percent in 1995 and decline from 1996 onwards and reach a rate of 7percent in 1999.. The composition with respect to currency, demand and time depositsremain the same as in the past at 50 percent, 8 percent and 42 percent, respectively. Thebulk of credit expansion goes to the private sector. Based on historical levels, the incomevelocity was set at 1.4 throughout our projection horizon. Given the growth rate of GDP,the model yields an inflation rate of 9 percent in 1995, dropping to about 4.5 percent in1997.

Policy Closure

21. Closure-specific assumptions. The policy closure assumes average privateconsumption relative to disposable income of approximately 75 percent for our projectionhorizon, and government consumption and investment relative to GDP of 10 and 5percent respectively. Monetary growth (M2) is at 16 percent in 1993 and drops to 7percent by 2003. Foreign reserves are expected to grow at 6 percent a year.

22. Solution. With the foregoing assumptions, the model generates real GDP growthof 5.75 percent over the next 10 years supported by private investment in the order of 25percent of GDP and ICORs of approximately 4.8. Total investment exceeds savings bysome 2-3 percent of GDP, and the accompanying current account imbalance is partiallysupported by drawing on foreign reserves.2 The level of reserves decreases slightly fromapproximately 5 months' worth in 1994 to just over 4.7 months worth in 2003.

23. In the balance of payments exports and imports increase as shares of GDP,reflecting a more open economy, and maintain a resource balance of 3 percent of GDPfrom 1998 onwards, compared to a balance of 5-6 percent in 1994 which reflectsincreased imports for reconstruction on account of the Cyclone Hollanda. Currentaccount activity is supported in part by rising foreign direct investment. In contrast, thereis almost constant or declining medium and long-term flows over the projection horizon.This scenario obliges the model to draw into foreign reserves to support the currentaccount.3

24. The central government accounts reflect a rising saving rate influenced largely byprojected reduction in interest payments. As such, with rising transfers to the privatesector, the government achieves an overall surplus by 2000. Under these circumstances

2In the policy closure the model does not draw on foreign reserves to support imports; the growth rate of foreignreserves given base year levels is specified as an assumption. Hlere the assumed 6 percent annual growth ofleads to a reduction in the reserves-imports ratio for 6 months to 4 months by the end of the projection period.

3The balance of payments account for Mauritius has been displaying an average errors and omissions amount(including unrecorded private capital) of the order of US$ 200 million over the past four years. In order forcreate available credit for imports, an average annual amount of approximately US$ 60 million has been usedas errors and omissions in the projections.


credit from the monetary sector ceases, and fiscal surpluses used to buy back governmentbonds from the private sector (the only holders of government bonds in this model).

25. The monetary sector accounts reflect the relationship between money growth andcredit creation. Money growth is determined by assumption. Initially (1995-97), aprespecified amount (25 percent of total domestic credit) is allocated to the to the publicsector, and the remainder to the private sector. Thereafter, all bank lending goes to theprivate sector. The government's share of the stock of domestic bank credit falls from 16percent in 1994 to 14 percent by 2002. The private sector's share rises from 44 percent to48 percent. Domestic credit as a share of M2 falls from 84 percent to 82 percent.

Public Closure

26. Closure-specific assumptions. This closure assumes private consumption relativeto disposable income of approximately 76 percent, and private investment relative to GDPof approximately 24 percent. The GDP deflator grows approximately six percent in theearly years and approximately 2 percent in the outer years of the horizon. Private credit isheld at approximately 70 percent of total credit for the period. This is broadly in line withthe public closure.

27. Solution. In order to achieve the growth rate of GDP of 5-6 percent obtained inthe policy closure, the present solution shows the government sector needs to borrow(with a gapfill loan) an amount equivalent to the reduction in reserves (apart from thecredit in the errors and omissions injected) in the policy closure. Indeed, debt of thegovernment rises from approximately 7 percent of GDP in 2003 in the policy closure to26 percent of GDP in the public closure. In other words, the significant differencebetween the two closures is the increase in government debt of 19 percent of GDP.

Private Closure

28. Closure-specific assumptions. The private closure assumes governmentconsumption and investment of approximately 10 and 5 percent of GDP respectively, andgovernment credit as 25 percent of total credit. The GDP deflator grows approximatelysix percent in the early years and approximately I percent in the outer years. This isbroadly in line with the other closures.

29. Solution. The solution to this closure shows symmetric results to the publicclosure. Targeted growth rates of the policy closure reveal a financing requirement in theorder of 19 percent of GDP. At the end of the projection horizon, private debt increasesfrom 18 percent of GDP to 36 percent of GDP, similar in magnitude to the amountrequired in the public closure.


RMSM-X Assumptions and Projections

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

GENERAL ASSUMPTIONS

GDP Growth PUB,PRI .. 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06

Inflation (p.a.) PUB,PRI .. 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01

ICOR .. 6.35 5.55 5.00 4.70 4.75 4.65 4.55 4.60 4.60 4.70

MWV Growth Rate 0.03 0.03 0.03 0.03 0.03 0.05 0.02 0.02 0.02 0.02

US GNP Deflator (for GNP Conv Factor) .. 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03

Population Growth .. 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

Devaluation Rate (#BLANK=> RER:constant) .. .. .. .. .. .. .. ..

EXTERNAL SECTOR

A TRADE BALANCE

RER-Elasticity of Imports:

Food .. 0.40 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30

OtherConsumerGoods PUB,PRI .. 0.40 1.00 0.20 0.10 0.10 0.10 0.10 0.10 0.10 0.10

Primary Goods 0.01 1.00 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

Manufactured Goods . 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

POL and Other Energy .. 0.02 0.35 0.35 0.35 0.35 0.20 0.01 0.01 0.01 0.01

Capital Goods .. 0.02 0.30 0.40 0.40 0.40 0.40 0.40 0.40 0 40 0.40

Nonfactor Services .. 0.02 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30

NDY-Elasticity of

Food 2.00 0.20 0.60 0.60 0.60 0.70 0.70 0.70 0.70 0.70

OtherConsumerGoods PUB,PRI .. 2.25 0.10 0.20 0.50 0.60 0.70 0.70 0.70 0.70 0.70

GDP-Elasticity of .. 3.35 0.60 1.00 1.85 1.55 1.50 1.20 1.20 1.75 1.75

Primary Goods .. 2.50 -0.50 0.30 0.60 0.60 0.70 0.90 1.00 1.50 1.10

Manufactured Goods .. 2.50 -0.50 0.30 0.60 0.60 0.70 0.90 1.00 1.50 1.10


CapitalGoods POL .. 3.00 0.05 0.10 1.00 1.00 1.00 1.00 1.00 1.00 2.00

Non-Factor Services -4.50 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95

GDI-Elasticity of:

CapitalGoods PUB,PRI .. 1.40 1.60 1.40 1.40 1.30 1.20 1.10 1.00 1.10 1.10



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

RER-Elasticity of Exports:

Manufacturing .. 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Foreign Income Elasticity of

Manufacturing .. 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00Foreign Income Growth 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

Growth rates for Exports

Sugar .. 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Textiles .. 0.05 0.02 0.04 0.06 0.06 0.06 0.06 0.06 0.06 0.06Other Industrial 0.01 -0.03 0.02 0.05 0.09 0.14 0.15 0.15 0.15 0.15Cut Flowers 0.01 0.45 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10Other .. 0.01 0.15 0.14 0.14 0.15 0.15 0.15 0.15 0.15 0.15Nonfactor Services .. -0.01 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03

A TRADE BALANCE (Cont)

International Prices on:

Impoit Products:

Food .. 0.02 0.02 0.02 0.02 0.02 0.02 0.00 0.00 0.00 0.00Other Consumer Goods .. 0.02 0.03 0.03 0.03 0.03 0.05 0.02 0.02 0.02 0.02Primary Goods .. 0.04 0.03 0.03 0.03 0.03 0.03 -0.02 -0.02 -0.02 -0.02Manufactured Goods .. 0.02 0.03 0.03 0.03 0.03 0.05 0.02 0.02 0.02 0.02POL and Other Energy .. 0.01 0.04 0.04 0.04 0.04 0.04 0.00 0.00 0.00 0.00Capital Goods .. 0.02 0.03 0.03 0.03 0.03 0.05 0.02 0.02 0.02 0.02Non-Factor Services .. 0.02 0.03 0.03 0.03 0.03 0.05 0.02 0.02 0.02 0.02

Export Products:

Sugar .. 0.02 0.04 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.03Textiles .. 0.02 0.03 0.03 0.03 0.03 0.05 0.02 0.02 0.02 0.02Other Industrial .. 0.03 0.03 0.03 0.03 0.03 0.05 0.02 0.02 0.02 0.02Cut Flowers .. 0.03 0.03 0.03 0.03 0.03 0.03 -0.02 -0.02 -0.02 -0.02Manufacturing Exports .. 0.02 0.04 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.03Other .. 0.03 0.03 0.03 0.03 0.03 0.03 -0.02 -0.02 -0.02 -0.02Non-Factor Services .. 0.02 0.04 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.03



1993 1994 1995 1996 1997 199S 1999 2000 2001 2002 2003

B. CURRENT ACCOUNT (Mll of USS)

Freight& rsnrance/Totallmports 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

Intercst Rate on Foreign Reserves 0.08 0.02 0.02 0.08 0.02 0.08 0.02 0.08 0.02 0.0S

Return on Profits Remittances 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Foreign Transfers to Goverment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Foreign Transfers to Private Sector -53.00 -53.00 -53.00 -53.00 -53.00 -53.00 -53.00 -53.00 -53.00 -53.00

Growth Rates for:

Worker Remittances 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Foreign Profits Remittances 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Govnmient Transfers to Foreign Sector 0 00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Private Transfers to Foreign Sctor 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Current Official Grants 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

C. CAPITAL ACCOUNT (Mul of USS)

Direct Foreign Investnent -25.50 10.00 58.00 61.20 66.10 70.70 75.70 20.90 26.60 86.60

Capital Official Grnts (r. ratc) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Errors & Omissions 240.00 160.00 20.00 70.00 45.00 60.00 70.00 20.00 90.00 60.00

Capial Nd Mentioned Elsewhere 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

E&O Adjusment 120.00 40.00 40.00 55.00 10.00 20.00 20.00 20.00 20.00 20.00

D. STOCKS OF DEBT (Mll of USS)

Foreign Reserves POL 7S9.36 236.72 886.92 940.14 996.55 1056.34 1119.72 1126.91 1258.12 1333.61

For Res as Months of Inp PUB,PRI 5.03 5.32 5.42 5.40 5.38 5.12 5.08 4.98 4.86 4.70

MONETARY SECTOR

A. CROSS CURRENCY EFFECTS ON:

Foreign Reserves 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Foreign Debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Foreign Aears 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Appendix Apage 10 of24


1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

B. REAL INTEREST RATE ON;

Demand Deposits . 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Time Deposits .. 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03

Public Bonds . 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03

Credit .. 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03

C. OTHER

Share of Profit & Losses for Cent. Gov. .. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

GrowthrateofMoneyStock POL . 0.16 0.16 0.12 0.10 0.08 0.07 0.07 0.07 0.07 0.07

Currency in Circulation/M2 .. 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50

Time Deposits/M2 .. 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42

Velocity ofMoney (w.r.t. M2) .. 1.36 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40

Monetary Savings 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

NATIONAL ACCOUNTS

A. INVESTMENT

ICOR .. 6.35 5.55 5.00 4.70 4.75 4.65 4.55 4.60 4.60 4.70

Private Investment/GDP PUB,POL .. 0.26 0.25 0.24 0.24 0.24 0.23 0.24 0.24 0.23 0.23

Public InvestmentVGDP PRI .. 0.05 0.05 0.05 0.05 0.04 0.05 0.05 0.05 0.05 0.05

0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.06

B. CONSUMPTIONPrivate Consumptiorn/Dis Inc POL.PUB .. 0.75 0.75 0.75 0.76 0.76 0.77 0.77 0.77 0.77 0.77

Government Consumption/GDP .. 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

C. OTHER

GrowthGDPdeflator PUB,PRI .. 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01

D. VALUE ADDED

GDP Growth PUB,PRI .. 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06

Growth of Agriculture .. 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03

GrowthofManufacturing .. 0.09 0.12 0.12 0.10 0.10 0.10 0.10 0.10 0.10 0.10

Growth of Mining & Quarrying .. 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04

Growth ofConstruction .. 0.12 0.10 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12

Growth of Gas, Electricity & Water .. 0.02 0.07 0.07 0.05 0.05 0.05 0.05 0.05 0.05 0.05



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

PRICES:

Agriculture 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04

Manufacturing .. 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05

Mining & Quarrying .. 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04

Construction .. 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04

Gas, Electricity & Water .. 0.06 0.05 0.05 0.05 0.05 0.04 0.04 0.04 0.04 0.04

CENTRAL GOVERNMENT

A. CURRENT ACCOUNT

Tariffs on Imports (%)

Food . 0.10 0.10 0.09 0.09 0.10 0.10 010 0.10 0.10 0.10

Other Consumer Goods .. 0.15 0.15 0.14 0.13 0.14 0.14 0.14 0.14 0.14 0.14

Primary Goods .. 0.05 0.05 0.04 0.04 0.05 0.05 0.05 0.05 0.05 0.05

Manufactured Goods .. 0.13 0.13 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12


Capital Goods .. 0.12 0.12 0.09 0.09 0.11 0.11 0.11 0.11 0.11 0.11

Nonfactor Services 0.15 0.15 0.14 0.13 0.15 0.15 0.15 0.15 0.15 0.15

Subsidies on Exports (%)Sugar 0.00 0.00 0.00 0.00 0.00 000 0.00 0.00 0.00 0.00

Textiles 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Other Industrial .. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Cut Flowers 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Manufacturing Exports .. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Other 0.00 0.00 0.00 0.00 0.00 0.00 000 0.00 0.00 0.00

Nonfactor Services 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Taxes and Transfers

Subsidies growth rate .. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

TransferstoPSgrowthrate .. 0.11 0.10 0.10 0.10 0.10 0.09 0.09 0.08 0.08 0.08

Non-Tax Revenues/GDP 0.03 0.03 0.03 0.03 0.03 003 0.03 0.03 0.03 0.03

Direct Taxes/GDPfc . 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05

Indirect TaxesIGDP 0.15 0.15 0.15 0.15 0.15 015 0.15 0.15 0.15 0.15



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

B. CAPITAL ACCOUNT

Capital Revenues .. 0.00 0.00 0 00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Capital Transfers to Private . 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

CLOSURE ASSUMPTIONS

PUBLIC

Private Investment/GDP .. 0.26 0.25 0.24 0.24 0.24 0.23 0.24 0.24 0.23 0.23

Private Consumption/Disposable Income .. 0.75 0.75 0.75 0.76 0.76 0.77 0.77 0.77 0.77 0.77

Growth GDP deflator .. 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01

Growth Rate of GDP .. 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06

Private Credit/Total Credit .. 0.75 0.75 0.75 0.77 0.79 0.80 0.81 0.82 0.83 0.83

ForeignReservesasMonthsoflmports .. 5.03 5.32 5.42 5.40 5.38 5.18 5.08 4.98 4.86 4.70

POLICY

Private Consumption/Disposable Income .. 0.75 0.75 0.75 0.76 0.76 0.77 0.77 0.77 0.77 0.77

GovernmentConsumption/GDP .. 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

Government Investment/GDP .. 0.05 0.05 0.05 0.05 0.04 0.05 0.05 0.05 0.05 0.05

Money growth .. 0.16 0.16 0.12 0.10 0.08 0.07 0.07 0.07 0.07 0.07

Govemment Credit/Total Credit .. 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25

Foreign Reserves (Stock) .. 789.36 836.72 886.92 940.14 996.55 1056.34 1119.72 1186.91 1258.12 1333.61

Foreign Reserves Growth Rate .. -0.08 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06

PRIVATE

Growth GDP deflator .. 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01

Growth Rate of GDP 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06

Govenmuent Investment/GDP 0.26 0.25 0.24 0.24 0.24 0.23 0.24 0.24 0.23 0.23

Government Consumption/GDP 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

Govenmuent Credit/Total Credit .. 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25

ForeignReservesasMonthsoflmports .. 5.03 5.32 5.42 5.40 5.38 5.18 5.08 4.98 4.86 4.70



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

DERIVED INDICATORS FOR POLICY CLOSURE


Absorption Growvth .. 0.07 0.03 0.05 0.06 0.05 0.06 0.06 0.06 0.06 0.06

Real Per Capita Growth Rates:

Gross Domestic Product (GDP) 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05

Total Consumption .. 0.06 0.04 0.05 0.04 0.05 0 05 0.05 0.05 0.05 0.06

Private Consumption .. 0.06 0.05 0.05 0.05 0.05 0.06 0.05 0.05 0.05 0.07

Debt and Debt Service (LT+ST+IMF):

TotalDOD(USSM) 1026.00 1077.20 1122.20 1171.20 1109.00 1148.60 1187.40 1258.00 1291.60 1319.00 1349.00

Total Debt/GDP 0.33 0.33 0.33 0.32 0.29 0.28 0.27 0.27 0.26 0.25 0.25

Debt Service (USSM) 144.00 148.50 152.20 168.40 188.61 210.49 224.98 239.54 252.35 260.42 272.00

Debt Service / Total Exports 0.07 0.07 0.07 0.07 0.07 0.08 0.07 0.07 0.07 0.07 0.70

Debt Service / GDP 0.05 0.05 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05

Interest Burden (LT+ST+IMF):Interest Paid (JSSM) 48.00 60.40 63.10 66.80 72.10 74.60 78.60 84.60 90.30 94.90 98.10

Interest Due (US$M) 48.00 60.40 63.10 66.80 72 10 74.60 78.60 84.60 90.30 94.90 98.10

Interest / Total Exports 0.02 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.02 0.02

Interest / GDP 0.02 0.02 0.02 0 02 0.02 0.02 0.02 0.02 0.02 0 02 0.02

Goods Market (Share of GDP)

Resource Balance -0.06 -0.08 -0.06 -0.05 -0.04 -0.03 -0.03 -0.03 -0.03 -0.03 -0.04

Exports 0.61 0.61 0 61 0.61 0.62 0.63 0.66 0.67 0.69 0.70 0.72

Imports 0.68 0.69 0.66 0.66 0.66 0.66 0.69 0.70 0.72 0.73 0.76

Consumption 0.76 0.77 0.76 0.75 0.74 0.74 0.74 0.73 0.73 0 72 0.73

Private 0.65 0.66 0.66 0.65 0.65 0.64 0.64 0.64 0.64 0 63 0.64

Public 0.10 0.10 0.10 0.10 0.09 0.09 0.09 0.09 0.09 0.09 0.09

Investment 0.31 0.32 0.30 0.29 0.30 0.29 0.29 0.30 0.30 0.31 0.31

Private 0.26 0.27 0.25 0.24 0.25 0.25 0.24 0.25 0.25 0.25 0.25

Public 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.06



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Gross National Savings 0.28 0.24 0.25 0.25 0.26 0.27 0.27 0.27 0.28 0.28 0.30Private 0.22 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.24 0.24Government 0.03 0.01 0.02 0.02 0.04 0.04 0.04 0.04 0.05 0.05 0.05Monetary 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

ICOR .. 6.35 5.55 5.00 4.70 4.75 4.65 4.55 4.60 4.60 4.70

PRICES

Nominal Exchange Rate (p.a.) 17.65 19.06 20.78 22.65 23.72 24.38 24.73 24.97 25.22 25.46 25.71Devaluation Rate (p.a.) 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01Nominal Exchange Rate(e.o.p.) 18.66 19.92 21.71 23.18 24.05 24.56 24.85 25.10 25.34 25.59 25.77DevaluationRate(e.o.p.) 1.11 0.07 0.09 0.07 0.04 0.02 0.01 0.01 0.01 0.01 0.01Real Exchange Rate

Real Exchange Rate (IMF) 1.00 .. . .. .. . .. ..

Terms ofTrade 1.00 0.99 1.00 1.00 1.00 1.00 1.01 1.03 1.05 1.07 1.09Inflation (e.o.p.) 0.05 0.13 0.06 0.04 0.02 0.01 0.01 0.01 0.01 0.01Inflation (p.a.) . 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01Consumption Deflator .. 0.08 0.08 0.08 0.04 0.02 0.01 0.00 0.00 0.00 0.00Investment Deflator .. 0.09 0.10 0.10 0.06 0.04 0.04 0.02 0.02 002 0.03

PUBLIC SECTOR

Government Investment'GDP 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.06Government Savings/GDP 0.03 0.01 0.02 0.02 0.04 0.04 0.04 0.04 0.05 0.05 0.05Revenues/GDP 0.25 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22Expenditures/GDP 0.26 0.26 0.25 0.25 0.23 0.23 0.23 0.23 0.23 0.23 0.23Government Deficit/GDP -0.02 -0.04 -0.03 -0.03 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 0.00Non-interest deficit/GDP -0.05 -0.06 -0.06 -0.06 -0.03 -0.02 -0.02 -0.02 -0.02 -0.02 -0.01Government Credit/GDP 0.03 0.01 0.02 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00Change Bonds,GDP 0.00 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.00Foreign Credit/GDP 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Direct Tax Rate 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04Indirect Tax Rate 0.17 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15

AppendixApage 15 of 24


1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

BALANCE OF PAYMENTS

GrossReserves(monthsmerchimports) 5.73 5.03 5.32 5.42 5.40 5.38 5.18 5.08 4.98 4.86 4.70

Change in reserves I M 0.36 0.34 0.34 0.34 0.34 0.34 0.34 0.34 0.34 0.34 0.17

As a share of GDP in LC:

Factor Payments 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02

Net Transfers 0.03 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

CAE3 -0.03 -0.07 -0.05 -0.04 -0.03 -0.02 -0.02 -0.02 -0.02 -0.03 -0.01

TRADE

Real Growth in Quantities (Const. US$)

Exports GNFS .. 0.02 0.02 0.03 0.04 0.05 0.05 0.06 0.06 0.06 0.06

Imports GNFS .. 0.05 -0.01 0.02 0.04 0.04 0.05 0.06 0.06 0.06 0.07

As Share of Merchandise Exports:

Sugar (Commodity 1) 0.25 0.25 0.24 0.24 0.23 0.22 0.20 0.19 0.18 0.17 0.16

Textiles (Commodity 2) 0.55 0.56 0.56 0.56 0.57 0.57 0.57 0.57 0.56 0.56 0.56

Other Industrial (Commodity 3) 0.14 0.14 0.13 0.13 0.13 0.13 0.14 0.16 0.17 0.18 0.19

Cut Flowers (Commodity 4) 0.00 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

Manufacturing 0.69 0.70 0.69 0.69 0.70 0.70 0.71 0.72 0.73 0.74 0.75

Other 0.05 0.05 0.06 0.06 0.07 0.08 0.08 0.08 0.08 0.09 0.09

Cap goods/Tot inv (in real terms) 0.38 0.41 0.41 0.40 0.40 0.40 0.40 0.40 0.39 0.38 0.41

As share of Merchandise Imports:

Food 0.13 0.13 0.13 0.13 0.13 0.13 0.12 0.12 0.11 0.11 0.11

Other Consumer Goods 0.09 0.09 0.09 0.08 0.09 0.09 0.09 0.10 0.11 0.10 0.10

Intermediate Goods 0.48 0.48 0.48 0.48 0.48 0.48 0 48 0.48 0.48 0.49 0.48

POL and Other Energy 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.08 0.08

Capital Goods 0.22 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0 23 0.23 0.24



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

ASSET MARKETS

I .Money:

Money Growth .. 0.16 0.16 0.12 0.10 0.08 0.07 0.07 0.07 0.07 0.07

Inflation (e.o.p.) 0.05 0.13 0.06 0.04 0.02 0.01 0.01 0.01 0.01 0.01

M2/GDP 0.70 0.73 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71

Currency/M2 0.49 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50

Demand Deposits/M2 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08

Time Deposits/M2 0.43 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42

Income-Velocity 1.44 1.36 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40

2.Credit:

Stocks:

Total CrediVGDP 0.60 0.63 0.64 0.62 0.62 0.61 0.60 0.59 0.59 0.59 0.58

Private CrediVGDP 0.44 0.48 0.48 0.47 0.48 0.48 0.48 0.48 0.44 0.45 0.45

GovenimentCredit/GDP 0.16 0.16 0.16 0.16 0.14 0.13 0.12 0.11 0.15 0.14 0.13

Total Credit/M2 0.82 0.84 0.85 0.85 0.85 0.84 0.84 0.83 0.82 0.82 0.81

Flows:

Total Credit/GDP 0.12 0.10 0.09 0.07 0.05 0.04 0.03 0.03 0.03 0.04 0.03


GovernmentCredit/GDP 0.03 0.01 0.02 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00

3.Bonds:

Bonds/GDP 0.04 0.05 0.05 0.05 0.06 0.06 0.07 0.07 0.03 0.04 0.04

Change BonrWGDP 0.00 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

4.Foreign Debt:

Total Debt/GDP 0.33 0.33 0.33 0.32 0.29 0.28 0.27 0.27 0.26 0.25 0.24

Public Debt/GDP 0.13 0.13 0.13 0.13 0.10 0.10 0.09 0.09 0.08 0.07 0.07

Monetary Sector/GDP 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.00 0.00

Private Debt/GDP 0.20 0.19 0.19 0.19 0.17 0.17 0.18 0.18 0.18 0.18 0.18

5.Nominal Interest Rates:

Lending Rate 0.17 0.11 0.12 0.12 0.08 0.06 0.04 0.04 0.04 0.04 0.04

Bond Rate 0.08 0.11 0.12 0.12 0.08 0.06 0.04 0.04 0.04 0.04 0.04

Demand Deposit 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Time Deposits 0.08 0.11 0.12 0.12 0.08 0.06 0.04 0.04 0.04 0.04 0.04

Foreign Debt 0.05 0.06 0.06 0.06 0.06 0.07 0.07 0.07 0.07 0.07 0.07



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

DERIVED INDICATORS FOR PUBLIC CLOSURE


Absorption Growth .. 0.07 0.03 0.05 0.06 0.05 0.05 0.06 0.06 0.07 0.06


Gross Domestic Product (GDP) 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05

Total Consumption .. 0.06 0.04 0.06 0.05 0.05 0.05 0.05 0.05 0.06 0.05



TotalDOD(US$M) 1026.00 1328.09 1475.27 1655.41 1734.54 1875.41 1978.97 2111.09 2182.81 2272.97 2335.52

Total Debt/GDP 0.33 0.41 0.43 0.45 0.45 0.46 0.46 0.46 0.45 0.44 0.44

Debt Service (lTSSM) 144.00 148.50 152.20 168.40 188.61 210.49 224.98 239.54 315.07 348.69 381.05


Debt Service / GDP 0.05 0.05 0.04 0.05 0.05 0.05 0.05 0.05 0.06 0.07 0.07

Interest Burden (LT+ST+IMF):

Interest Paid (USSM) 48.00 60.40 63.10 66.80 72.10 74.60 78.60 8460 90.30 94.90 98.10

Interest Due (US$M) 48.00 60.40 63.10 66.80 72.10 74.60 78.60 84.60 90.30 94.90 98.10


Interest / GDP 0.02 0.02 0.02 0.02 0 02 0.02 0.02 0.02 0.02 0.02 0.02



Exports 0.61 0.61 0.61 0.61 0.62 0.63 0.66 0.67 0.69 0.70 0.72

Imports 0.68 0.69 0.67 0.66 0.67 0.67 0.69 0.70 0.71 0.73 0.75

Consumption 0.76 0.77 0.76 0.76 0.75 0.74 0.74 0.73 0.72 0.72 0.72

Private 0.65 0.66 0.66 0.65 0.65 0.65 0.65 0 64 0.64 0.63 0.64

Public 0.10 0.11 0.10 0.11 0.10 0.10 0.09 0.09 0.09 0.09 0.08

Investment 0.31 0.32 0.30 0.29 0.30 0.29 0.29 0.30 0.30 0.31 0.31

Private 0.26 0.26 0.25 0.25 0.25 0.25 0.25 0.26 0.26 0.26 0.26

Public 0 04 0.05 0.05 0.04 0.05 0.04 0.04 0.04 0.04 0.05 0.05



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Gross National Savings 0.28 0.24 0.25 0.25 0.26 0.27 0.27 0.28 0.29 0.29 0.31Private 0.22 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.24 0.24 0.24Government 0.03 0.01 0.02 0.02 0.03 0.04 0.05 0.05 0.05 0.05 0.07Monetary 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

ICOR .. 6.35 5.55 5.00 4.70 4.75 4.65 4.55 4.60 4.60 4.70

PRICES

Nominal Exchange Rate(p.a.) 17.65 19.06 20.78 22.65 23.78 24.49 24.74 24.99 25.24 25.49 25.74Devaluation Rate (p.a.) 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01NominalExchangeRate(e.o.p.) 18.66 19.92 21.71 23.21 24.14 24.62 24.86 25.11 25.36 25.62 25.77Devaluation Rate (e.o.p.) 1.11 0.07 0.09 0.07 0.04 0.02 0.01 0.01 0.01 0.01 0.01Real Exchange Rate

Real Exchange Rate (IMF) 1.00 .. .. .. .. .. .. ..

Terms ofTnde 1.00 0.99 1.00 1.00 1.00 1.00 1.01 1.03 1.05 1.07 1.09Inflation (e.o.p.) 1.11 0.07 0.09 0.07 0.04 0.02 0.01 0.01 0.01 0.01 0.01Inflation (p.a.) 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01Consumption Deflator .. 0.08 0.08 0.08 0.04 0.02 0.01 0.00 0.00 0.01 0.00Investmnt Deflator 0.09 0.10 0.10 0.06 0.04 0.03 0.02 0.02 0.02 0.02

PUBLIC SECTOR

Govenmuent InvestmenUGDP 0.04 0.05 0.05 0.04 0.05 0.04 0.04 0.04 0.04 0.05 0.05Govcrnment Savings/GDP 0.03 0.01 0.02 0.02 0.03 0.04 0.05 0.05 0.05 0.05 0.07Revenues/GDP 0.25 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22Expenditurst/GDP 0.26 0.27 0.25 0.25 0.24 0.22 0.22 0.21 0.21 0.22 0.21Government Deficit/GDP -0.02 -0.04 -0.03 -0.02 -0.02 0.00 0.00 0.01 0.01 0.00 0.01Non-interest deficit/GDP -0.05 -0.07 -0.05 -0.05 -0.03 -0.01 -0.01 0.00 0.00 0.00 0.01Govcrnmncrt Credit/GDP 0.03 0.00 0.02 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00Change Bonds/GDP 0.00 -0.03 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.00Foreign Credit/GDP 0.00 0.08 0.03 0.04 0.04 0.02 0.01 0.01 0.01 0.01 0.00Direct Tax Rate 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04Indiremt Tax Ratc 0.17 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

BALANCE OF PAYMENTS

GrossReserves(monthsmerch imports) 5.73 6.24 6.68 6.84 6.83 6.81 6.56 6.43 6.29 6.11 5.76

Change in reserves / M 0.36 0.41 0.43 0.44 0.44 0.44 0.43 0.43 0.43 0.43 0.41

As a share of GDP in LC:

Factor Payments 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02

Net Transfers 0.03 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

CAB -0.03 -0.08 -0.05 -0.04 -0.04 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02

TRADE

Real Growth in Quantities (Const. USS)

Exports GNFS .. 0.02 0.02 0.03 0.04 0.05 0.05 0.06 0.06 0.06 0.06

Imports GNFS .. 0.06 -0.01 0.02 0.04 0.03 0.04 0.06 0.06 0.07 0.06


Sugar (Commodity 1) 0.25 0.25 0.24 0.24 0.23 0.22 0.20 0.19 0.18 0.17 0.16


OtherIndustrial (Commodity3) 0.14 0.14 0.13 0.13 0.13 0.13 0.14 0.16 0.17 0.18 0.19

Cut Flowers (Conmnodity 4) 0.00 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

Manufacturing 0.69 0.70 0.69 0.69 0.70 0.70 0.71 0.72 0.73 0.74 0.75

Other 0.05 0.05 0.06 0.06 0.07 0.08 0.08 0.08 0.08 0.09 0.09



Food 0.13 0.13 0.13 0.13 0.13 0.13 0.12 0.12 0.12 0.11 0.11


Intermediate Goods 0.48 0.48 0.47 0.47 0.47 0.48 0.48 0.48 0.48 0.49 0.49

POL and Other Energy 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.08 0.08

Capital Goods 0.22 0.22 0.22 0.22 0.23 0.23 0.23 0.23 0.23 0.23 0.23

AppendixApage 20 of 24


1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

ASSET MARKETS

I .Money:

Money Growth .. 0.18 0.12 0.13 0.10 0.08 0.07 0.07 0.07 0.07 0.07Inflation (e.o.p.) 1.11 0.07 0.09 0.07 0.04 0.02 0.01 0.01 0.01 0.01 0.01

M2/GDP 0.70 0.73 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71

Currency/M2 0.49 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50


Time Deposits/M2 0.43 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42

Income-Velocity 1.44 1.36 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40

2.Credit:

Stocks:

Total Credit/GDP 0.60 0.59 0.57 0.56 0.56 0.55 0.55 0.54 0.54 0.54 0.54


GovernmentCrediVGDP 0.16 0.15 0.14 0.14 0.13 0.12 0.11 0.10 0.10 0.09 0.09

Total CreditVM2 0.82 0.77 0.77 0.77 0.77 0.76 0.76 0.76 0.75 0.75 0.75

Flows:

Total Credit/GDP 0.12 0.06 0.06 0.07 0.05 0.04 0.03 0.03 0.03 0.03 0.03

Private Credit'GDP 0.10 0.06 0.05 0.05 0.05 0.04 0.03 0.03 0.03 0.03 0.03

Government Credit/GDP 0.03 0.00 0.02 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00

3.Bonds:

Bonds/GDP 0.04 0.01 0.01 0.00 0.01 0.01 0.01 0.00 0.00 0.00 0.00

Change Bonds/GDP 0.00 -0.03 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.00

4.Foreign Debt:

Totl Debt/GDP 0.33 0.41 0.43 0.45 0.45 0.46 0.46 0.46 0.45 0.44 0.44

Public DebL/GDP 0.13 0.21 0.23 0.26 0.26 0.27 0.27 0.27 0.26 0.26 0.26


Private Debt/GDP 0.20 0.19 0.19 0.19 0.17 0.17 0.18 0.18 0.18 0.1I 0.18

5.Nomninal Interest Rates:

Lending Rate 0.17 0.11 0.12 0.12 0.08 0.06 0.04 0.04 0.04 0.04 0.04

Bond Rate 0.08 0.11 0.12 0.12 0.08 0.06 0.04 0.04 0.04 0.04 0.04

Demand Deposit 0.00 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01

Tine Deposits 0.08 0.11 0.12 0.12 0.08 0.06 0.04 0.04 0.04 0.04 0.04

Foreign Debt 0.05 0.06 0.05 0.05 0.04 0.04 0.04 0.04 0.04 0.04 0.04



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

DERIVED INDICATORS FOR PRIVATE CLOSURE

Growth Rate ofGDP .. 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06

Absorption Growth .. 0.07 0.03 0.05 0.06 0.05 0.05 0.06 0.06 0.07 0.06


Gross Domestic Product (GDP) . 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05

Total Consumption .. 0.06 0.04 0.06 0.05 0.05 0.05 0.05 0.05 0.06 0.05



Tota DOD(USSM) 1026.00 1328.09 1475.96 1656.81 1735.88 1876.37 1979.07 2110.49 2181.73 2271.54 2335.52

Total Debt/GDP 0.33 0.41 0.43 0.45 0.45 0.46 0.46 0.46 0.45 0.44 0.44

Debt Service (US$M) 144.00 148.50 152.20 168.40 188.61 210.49 266.79 298.50 33328 364.90 372.23


Debt Service / GDP 0.05 0.05 0.04 0.05 0.05 0.05 0.06 0.06 0.07 0.07 0.07

Interest Burden (LT+ST+IMF):

Interest Paid (USSM) 48.00 60.40 63.10 66.80 72.10 74.60 78.60 84.60 90.30 94.90 98.10Interest Due (USSM) 48.00 60.40 63.10 66.80 72.10 74.60 78.60 84.60 90.30 94.90 98.10


Interest / GDP 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02



Exports 0.61 0.61 0.61 0.61 0.62 0.63 0.66 0.67 0.69 0.70 0.72

Imports 0.68 0.69 0.67 0.67 0.67 0.67 0.69 0.70 0.71 0.73 0.75

Consumption 0.76 0.77 0.76 0.76 0.75 0.74 0.74 0.73 0.72 0.72 0.72

Private 0.65 0.66 0.66 0.66 0.66 0.65 0.64 0.64 0.63 0.63 0.63

Public 0.10 0.10 0.10 0.10 0.10 0.09 0.09 0.09 0.09 0.09 0.09

Investment 0.31 0.32 0.30 0.29 0.30 0.29 0.29 0.30 0.30 0.31 0.31

Private 0.26 0.27 0.25 0.24 0.25 0.25 0.24 0.25 0.25 0.26 0.26

Public 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.06



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Gross National Savings 0.28 0.24 0.25 0.25 0.26 0.27 0.27 0.28 0.29 0.29 0.31

Private 0.22 0.23 0.23 0.23 0.22 0.23 0.23 0.24 0.24 0.24 0.26

Govermment 0.03 0.01 0.02 0.02 0.03 0.04 0.04 0.04 0.05 0.05 0.05

Monetary 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

ICOR .. 6.35 5.55 5.00 4.70 4.75 4.65 4.55 4.60 4.60 4.70

PRICES

Nominal Exchange Rate (p.a.) 17.65 19.06 20.78 22.65 23.78 24.49 24.74 24.99 25.24 25.49 25.74

Devaluation Rate (p.a.) .. 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01

Nominal Exchange Rate (e.o.p.) 18.66 19.92 21.71 23.21 24.14 24.62 24.86 25.11 25.36 25.62 25.77

Devaluation Rate (e.o.p.) 1.11 0.07 0.09 0.07 0.04 0.02 0.01 0.01 0.01 0.01 0.01

Real Exchange Rate

Real Exchange Rate (IMF) 1.00 .. .. .. .. .. .. ..

Terms of Trade 1.00 0.99 1.00 1.00 1.00 1.00 1.01 1.03 1.05 1.07 1.09

Inflation (e.o.p.) 1.11 0.07 0.09 0.07 0.04 0.02 0.01 0.01 0.01 0.01 0.01

Inflation (p.a.) 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01

Consumption Deflator .. 0.08 0.08 0.08 0.04 0.02 0.01 0.00 0.00 0.01 0.00

Investment Deflator .. 0.09 0.10 0.10 0.06 0.04 0.03 0.02 0.02 0.02 0.02

PUBLIC SECTOR

Government Investment/GDP 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.06

Government Savings/GDP 0.03 0.01 0.02 0.02 0.03 0.04 0.04 0.04 0.05 0.05 0.05

Revenues/GDP 0.25 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22

Expenditures/GDP 0.26 0.26 0.25 0.25 0.23 0.23 0.23 0.23 0.23 0.23 0.22

Government Deficit/GDP -0.02 -0.04 -0.03 -0.03 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 0.00

Non-interest deficit/GDP -0.05 -0.06 -0.06 -0.06 -0.04 -0.03 -0.02 -0.02 -0.02 -0.02 -0.01


Change Bonds/GDP 0.00 0.03 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.00

Foreign Credit/GDP 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Direct Tax Rate 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04

Indirect Tax Rate 0.17 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

BALANCE OF PAYMENTS

GrosaRecrves(monthmerchimports) 5.73 6.24 6.68 6.84 6.83 6.81 6.56 6.43 6.29 6.11 5.76

Change in reserves / M 0.36 0.41 0.43 0.44 0.44 0.44 0.43 0.43 0.43 0.43 0.41

As a shre of GDP in LC:

Factor Paymcnts 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02

Net Tranfers 0.03 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

CAB -0.03 -0.08 -0.05 -0.04 -0.04 -0.02 -0.02 40.02 -0.02 -0.02 -0.02

TRADE

Real Growth in Quantities (Const USS)

Exports GNFS .. 0.02 0.02 0.03 0.04 0.05 0.05 0.06 0.06 0.06 0.06

Imports GNFS .. 0.06 -0.01 0.02 0.04 0.03 0.04 0.06 0.06 0.07 0.06


Sugar (Commodity 1) 0.25 0.25 0.24 0.24 0.23 0.22 0.20 0.19 0.18 0.17 0.16


Other ndustrial (Commodity3) 0.14 0.14 0.13 0.13 0.13 0.13 0.14 0.16 0.17 0.18 0.19

Cut Flowers (Commodity 4) 0.0o 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

Manufacturing 0.69 0.70 0.69 0.69 0.70 0.70 0.71 0.72 0.73 0.74 0.75

Other 0.05 0.05 0.06 0.06 0.07 0.08 0.08 0.08 0.08 0.09 0.09



Food 0.13 0.13 0.13 0.13 0.13 0.13 0.12 0.12 0.12 0.11 0.11


lamediate Goods 0.48 0.48 0.47 0.47 0.47 0.48 0.48 0.48 0.48 0.49 0.49

POL and Other Energy 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.0S 0.08

Capital Goods 0.22 0.22 0.22 0.22 0.23 0.23 0.23 0.23 0.23 0.23 0.23



1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

ASSET MARKETS

I .Money:

Money Growth .. 0.18 0.12 0.13 0.10 0.08 0.07 0.07 0.07 0.07 0.07

Inflation (e.o.p.) 1.11 0.07 0.09 0.07 0.04 0.02 0.01 0.01 0.01 0.01 0.01

M2/GDP 0.70 0.73 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71

Currency/M2 0.49 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50


Time Deposits/M2 0.43 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42

Income-Velocity 1.44 1.36 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40

2.Credit:

Stocks:

Total Credit/GDP 0.60 0.59 0.57 0.56 0.56 0.55 0.55 0.54 0.54 0.54 0.54

Private CrediVtGDP 0.44 0.44 0.43 0.42 0.43 0.43 0.44 0.44 0.41 0.41 0.41

GovernmentCrediVtGDP 0.16 0.15 0.14 0.14 0.13 0.12 0.11 0.10 0.14 0.13 0.12

Total Credit/M2 0.82 0.77 0.77 0.77 0.77 0.76 0.76 0.76 0.75 0.75 0.75

Flows:

Total CrediVtGDP 0.12 0.06 0.06 0.07 0.05 0.04 0.03 0.03 0.03 003 0.03

Private Credit/GDP 0.10 0.06 0.05 0.05 0.05 0.04 0.03 0.03 0.03 0.03 0.03


3.Bonds:

Bonds/GDP 0.04 0.06 0.07 0.07 0.07 0.08 0.08 0.08 0.04 0.05 0.05

Change Bonds/GDP 0.00 0.03 0.01 0.01 0.01 0.01 0.01 0. 01 0.01 0.01 0.00

4.Foreign Debt:

Total Debt/GDP 0.33 0.41 0.43 0.45 0.45 0.46 0.46 0.46 0.45 0 44 0.44

Public Debt/GDP 0.13 0.13 0.13 0.13 0.10 0.10 0.09 0.09 0.08 0.07 0.07


Private Debt/GDP 0.20 0.27 0.30 0.32 0.34 0.35 0.36 0.37 0.36 0.36 0.36

5.Nominal Interest Rates:

Lending Rate 0.17 0.11 0.12 0.12 0.08 0.06 0.04 0.04 0.04 0.04 0.04

Bond Rate 0.08 0.11 0.12 0.12 0.08 0.06 0.04 0.04 0.04 0.04 0.04

Demand Deposit 0.00 0.08 0.09 0.09 0.05 0.03 0.01 0.01 0.01 0.01 0.01

Time Deposits 0.08 0.1 1 0.12 0.12 0.08 0.06 0.04 0.04 0.04 0.04 0.04

Foreign Debt 0.05 0.06 0.05 0.05 0.04 0.04 0.04 0.04 0.04 0.04 0.04

Appendix Bpage I of 8

Appendix B. POVERTYAND SOCIAL EXPENDITURES

Overall Levels of Poverty and Consumption Patterns

I . Mauritius' rapid economic progress has helped to reduce the percent of the population living belowthe poverty line (Rs 2,168 per household per month) from 28.4 percent in 1981 to 10.6 percent in 1992 '.The poverty situation had worsened sligjhtlv between 1975 and 1981 but the overall trend over the past twodecades is unmistakably downward. The poverty line has been set at the real level of one third of theaverage expenditures calculated from the 1991-92 Household Income and Expenditure Survey (HIES) andis equivalent to about US$ 330 per capita per year. The more distribution sensitive measures of povertyimproved even more. The average income of those below the poverty line was 10.4 percent below thepoverty line in 1981 while bv 1992 it was 2.5 percent. A program of transfers to the poor, to bring themup to the poverty line, would have cost 5.6 percent of GDP in 1981 while by 1992 it would have cost only0.5 percent of GDP2 . Between 1981 and 1992, real incomes rose at an average annual rate of 3 percentand as this growth was achieved through labor intensive industrialization, the Gini coefficient of incomeinequality improved from 0.457 to 0.370.

Table 1: Mauritius - Household Monthly Income & Poverty Line for HIES Survey Years

Growth1975 1980-81 1986-87 1991-92 '81 -'92

Average Household Monthly Income in Rs.Current Prices 741 2,212 3,496 6,503 14%*1991-92 Prices 3,529 4,982 5,333 6,503 4%

Poverty Line (PL) in Rs./MonthCurrent Prices 461 962 1,421 2,168 10%1991-92 Prices 2,168 2,168 2,168 2,168 0%

CPI (1991-92=100) 21 44 66 100 10%Poverty MeasuresGini Coefficient of Inequality 0.419 0.457 0.398 0.370Percent Below Poverty Line 40.3% 28.4% 19.5% 10.6%

Difference between Pov. Line and Aver. Inc. of 14.7% 10.4% 5.9% 2.5%PoorPoverty Severity 7.2% 5.0% 2.4% 0.8%

Cost of Transfers to bring poor to Poverty Linemillions of Rs. at current prices 352 564 419 223millions of Rs. at constant 1991-92 prices 1,654 1,270 634 223

Above Transfers as Percent GDP 8.4% 5.6% 2.1% 0.5%GDP in current prices 4,166 10,003 19,700 42,419Population 882,800 970,347 1,023,644 1,073,355Source: Bank staff estimates from data in 1981, 1986 and 1992 Household Income and Expendituresurveys

'This is equivalent to one third of the average household monthly expenditures and is in line with estimates of household costof living being developed by the authorities.

2Assuming perfect targeting and little administrative costs. In practice the cost could be twice as high because of leakages andadministrative costs.

Appendix Bpage 2 of 8

2. Even the 10.6 percent figure for the proportion of poverty in 1992 may overstate the problem asthose living below the poverty line are protected by traditional Mauritian social support mechanisms suchas joint-families. The joint-famlly reduces household overhead costs, takes care of children allowingmothers to work in factories and provides security to widows and orphans. This type of family socialsecurity is common in traditional societies and it seems to have survived the rapid economic transformationin Mauritius. It is estimated that almost 10 percent of Mauritians benefit from these transfers (see para.6below).

3. The joint-family system improves Mauritius overall economy and international competitiveness intwo ways: (a) it allows Mauritian workers to work at lower wages than they would need to receive, if allfamilies were living independently; and (b) it increases the level of savings in the economy (see para.7below). This has allowed Mauritius to maintain competitiveness despite a relatively high cost of living. Itstourism industry continues to attract workers despite relatively low wages and has been able to improveservice and remain competitive compared to countries such as Seychelles.

4. Mauritius has inherited a system of elitism which sometimes generates a less than favorableresponse to the poor and their problems. This has led the state to continue to support an elitist educationsvstem in the past though this has been changing recently. One manifestation of this change is the newEducation Sector Master Plan which is designed to increase access to education by all levels of society.

6. Despite the stability in aggregate expenditure patterns over time, differences do persist inexpenditure pattems of different income groups. It is apparent from the food expenditure data in Table 3that those households earning less than Rs 2000 per month (representing about 7 percent of totalhouseholds) are not really independent or they would be spending proportionately more on food.

Consumption Patterns

5. The country's spectacular economic performance has occurred very rapidly andconsumption patterns have yet to respond to the rapid improvements in per capita income. Thedifferent household surveys reveal an unexpectedly stable pattern of consumption as shown belowin Table 2. Expenditures on food and non-alcoholic beverages as a share of total expendituresremained stable even during a period when real per capita incomes grew 36 percent. Householdseither consumed increased amounts of the same food or purchased more expensive food or acombination of both.

Table 2: Evolution of Expenditures by Major Categories 1975 to 1992 in 1992 Prices

Monthly Cash Expend.! Household Distribution of ExpendituresCategory 1975 1981 1992 1975 1981 1992Food & Non-Alcoholic 1,554 1,885 2,122 41.2% 41.9% 40.7%BeveragesClothing and Footwear 445 465 476 11.8% 10.3% 9.1%Health and Education 275 278 335 7.3% 6.2% 6.4%Other Expenditures 1,496 1,868 2,278 39.7% 41.5% 43.7%Total 3,770 4,496 5,211 100.0% 100.0% 100.0%Source: Bank staff estimates from data in 1975, 1981, and 1992 Household Income and Expenditure surveys


Furthermore, a significant proportion of those earning between Rs 2000 and Rs 3000 per month(representing another 4.3 percent of households) are also receiving help from within the joint family whenone considers that the proportion of expenditures on food is significantly less than the next higher group.This implies that over 10 percent of Mauritian households benefit from intra-joint family transfers. Theshare of all other basic expenditures are as expected i.e. declining with increasing incomes above Rs 4000per month.

7. The system of intra-joint-family transfers may allow younger people to save substantiallv evenduring the lower income part of their life-cycle. This would allow them the opportunity to invest inhousing or other durable goods later on.

Table 3: Expenditure Patterns from 1991 HIES Survey in Mauritius

Cloth./Income Group in Monthly Hous'ng Food Footw. Education Health Fuel/Power

Rs/month Expend.

Under 500 388.9 0.5% 6.2% 1.2% 0.4% 0.7% 0.8%500-750 650.7 0.8% 3.9% 0.3% 0.0% 0.6% 0.7%750-1,000 880.6 0.7% 5.7% 0.2% 0.0% 0.1% 1.0%1.000-1,500 1,277.0 1.4% 13.4% 1.1% 0.3% 1.3% 2.3%1,500-2.000 1,749.7 2.3% 15.4% 1.2% 0.3% 1.1% 2.2%2,000-3,000 2,561.9 4.3% 47.2% 5.5% 1.3% 2.5% 6.6%3,000-4.000 3,480.7 5.6% 59.8% 8.1% 2.3% 4.5% 8.4%4,000-5,000 4,483.3 5.2% 53.1% 8.6% 2.3% 3.7% 7.1%5,000-6,000 5,472.2 4.5% 44.1% 7.9%1 28% . .32% 5.8%6,000-7,000 6,484.0 3.3% 28.9% 5.8% 1.8% 2.1% 3.8%7,000-8,000 7,477.6 2.9% 22.9% 5.0% 1.5% 1.9% 3.1%8:000-9.000 8,447.6 1.8% 18.5% 4.5% 1.1% 1.7% 2.3%9.000-10.000 9,507.8 1.4% 10.9% 2.3% L . 0.26% 0-o2 1.4%10,000-12,000 10,944.3 2.2% 18.4% 5.1% 1.6% 1.9% 2.3%12,000-14,000 12,960.6 1.0% 8.7% 2.6% 1.2% 1.1% 1.0%14,000-16,000 15,031.3 0.6% 5.1% 1.8% 0.5% 0.5% 0.6%16,000-18,000 16,916.0 0.5% 4.4% 1.5% 0.4% 0.4% 0.5%18,000-20,000 19,000.4 0.3% 2.2% 0.8% 0.4% 0.3% 0.3%20.000-25,000 21,741.0 0.3% 2.5% 0.9% 0.2% 0.5% 0.3%Over 25,000 35,993.9 0.4% 2.2% 0.9% 0.2% 0.5% 0.3%

Total 5,211.3 4.5% 40.7% 9.1% 2.7% 3.7% 5.4%Source: Prepared by Bank Staff from 1991-92 HES

8. Relatively low income people spend significant sums for education and health. Private tuition isconsidered a necessity for children though attendance is otherwise free. Parents spend significant amountson private tuition for primary schools because of the highly competitive primary school certificateexamination which tracks students to good schools and also tracks the majority out of secondary education.Despite Government efforts to discourage this, there is also pressure from teachers to force parents to sendtheir children for private tuition. Those in the middle of the distribution spend more in absolute terms on


education and health than those upper end of the distribution. For exanple, a household earning betweenRs 3000 and Rs 4000 per month spends Rs 156 on health and Rs 82 on education every month. Sirmilarly,a household earning between Rs 5,000 and Rs 6,000 per month spends Rs 176 and Rs 152 respectively.By contrast, a household earning between Rs 9,000 and Rs 10,000 a month spends Rs 85 on health and Rs57 on education every month. The reasons need to be explored carefully but could primarily be that thehigher income groups are more successful in getting (a) their children admitted to prestigious statesecondary schools; (b) access to employer or Government subsidized health facilities; and (c) scholarshipsfor their children. Should this be the case the equity impact of public education expenditures needs to beexamined carefully.

Table 4: Mauritius - Ministry of Education Expend. Trends by Fiscal Year(Rs. Millions at Current Prices)

1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94Revised Budget

Ministry Expenses 69 79 107 97 112 193 122Primary Schools 316 323 424 395 509 490 615State Secondary 85 89 121 138 154 161 204SchoolsPrivate Secondary Sch. 170 207 284 322 360 397 495Higher Education 66 81 105 136 166 184 234Vocational/Technical 11 11 14 21 17 14 1Educ.

TotalEducationBudget 716 790 1,055 1,108 1,318 1,440 1,830Total Government 5,905 7,015 7,978 9,040 10,070 10,710 12,730BudgetPercent to Education 12.1% 11.3% 13.2% 12.3% 13.1% 13.4% 14.4%

Distribution of Ministry of Education Expenditures by Main Categories1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94

BudgetMinistry Expenses 9.6% 10.0% 10.2% 8.8% 8.5% 13.4% 6.6%Primary Schools 44.1% 40.9% 40.2% 35.6% 38.6% 34.0% 33.6%State Secondary 11.8% 11.2% 11.5% 12.4% 11.7% 11.2% 11.1%SchoolsPrivate Secondary Sch. 23.7% 26.2% 26.9% 29.0% 27.3% 27.6% 27.0%Higher Education 9.2% 10.3% 9.9% 12.3% 12.6% 12.8% 12.8%Vocational/Technical 1.6% 1.4% 1.3% 1.9% 1.3% 1.0% 0.1%Educ.Source: World Bank staff estimates; original data from Government sources.


Public Expenditure Trends in Health and Education

9. The Government has historically shown a strong commitment to human resource development byallocating significant shares of public sector resources to education and health. Although the allocations to

education are high in historical terms for Mauritius, they are low compared with the middle-incomecountries of East Asia with whom Mauritius likes to compare itself.

10. Within these sectors priorities have been given appropriately e.g. Government started by givingpriority first to primary education, then to secondary education and is now moving to tertiary education.Tables 4 and 5 show expenditure trends for the Ministries of Health and Education.

11. The government commitment to education is demonstrated by significant increases in the recurrentbudget to education but as noted above (para. 9), they remain low compared to East Asia. Overalleducation expenditures increased by 42 percent in real terms between 1988-89 and 1992-93. During thesame period, primary education expenditures increased by 18 percent in real terms while secondaryeducation expenditures increased by 35 percent in real terms.

12. A third of children, mostly from disadvantaged households, fail to go beyond primary school. TheGovernment is now working to change this elitist system (see para. 4) to allow more students through tothe secondary level. The primary examination failures are presently going to post-primary vocationaltraining centers - this is a highly ineffective way of vocational training and does not help the pupils becomegood workers or citizens. Future reforms are being planned to make these centers into remedial lowersecondary schools which will provide additional training to students to enable them to enter the regularsecondary cycle.


13. Between 1988-89 and 1992-93 real public expenditures for health increased by 20 percent.Expenditures for public health services increased in real terms by 53 percent and expenditures on hospitalcare increased by 84 percent. Hospital care is free and with major hospitals being reasonably spread outover the country most people have access to hospital care. But as in most countries the better educated(and better off) people tend to use more hospital services and the incidence of hospital sector expendituresmay be somewhat biased towards the middle class. Nevertheless, as the middle class is quite large and

Table 5: Mauritius - Ministry of Health Expenditures Trends by Fiscal Year(Rs. Millions in Current Prices)

1988-89 1989-90 1990-91 1991-92 1992-93 1993-94Revised Budget

Ministry General 194 193 57 61 63 80- Personnel 109 128 38 38 39 43- Other Recurrent Costs 84 65 20 23 25 36

Hospital Services 309 335 568 650 731 808- Personnel 243 237 388 437 466 514- Other Recurrent Costs 66 98 180 213 265 294

Primary Health Care 33 37 52 58 65 115-Personnel 29 33 44 48 55 98- Other Recurrent Costs 4 5 8 10 10 18

Support Services 46 41 30 32 38 47- Personnel 34 22 19 21 23 29- Other Recurrent Costs 12 19 11 11 15 18

Total Ministry of Health 581 607 706 801 897 1,050- Personnel 414 420 488 543 583 684- Other Recurrent Costs 167 187 218 257 314 366

Total Government Budget 7,015 7,978 9,040 10,070 10,710 12,730Ministry of Health as % Total 8.3% 7.6% 7.8% 8.0% 8.4% 8.2%

Distribution of Ministry of Health Expenditures by Major Categories1988-89 1989-90 1990-91 1991-92 1992-93 1993-94

Revised BudgetMinistry General 33.3% 31.8% 8.1% 7.6% 7.1% 7.6%Hospital Services 53.1% 55.3% 80.3% 81.2% 81.5% 76.9%Primary Health Care 5.7% 6.1% 7.3% 7.3% 7.2% 11.0%Support Services 7.8% 6.8% 4.2% 4.0% 4.2% 4.5%

Total Ministry of Health 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%-Personnel 71.3% 69.2% 69.1% 67.9% 65.0% 65.1%-Other Recurrent Costs 28.7% 30.8% 30.9% 32.1% 35.0% 34.9%

Source: Prepared by Bank Staff from Government Datagrowing, the incidence is not as inequitable as in some other countries.


Private and Total Expenditures in Health and Education

14. Mauritius devotes an adequate amount of public and private resources to health and education asshown in Table 6 below. These data were calculated for 1991-92 using the results of the householdincome and expenditure survey of 1991-92 and public expenditure data. The projections for 1993-94 arebased on: (i) using budget estimates for public expenditures; and (ii) assuming that private expendituresgrow in line with per capita GDP.

Table 6: Public and Private Expenditures on Health and Education in Current Prices

1991-92 1993-94 ProjectionsEducation Health Total Education Health Total

Public Expenditures in Rs. millions 1,318 801 2,119 1,830 1050 2,880Private Expenditures in Rs. Millions 421 565 986 522 701 1,223Total Expenditures in Rs. Millions 1,739 1,366 3,105 2,352 1,751 4,103

Per Capita Expenditures in Rs. per year- Public 1,228 746 1,974 1,705 978 2,683- Private 392 526 919 486 653 1,139- Total 1,620 1,273 2,893 2,191 1,631 3,823

Per Capita Expenditures in US $ per year- Public $68 $41 $110 $95 $54 $149- Private $22 $29 $51 $27 $36 $63- Total S90 $71 $161 $122 $91 $212

Total Expenditures as Percent of GDP- Public 3.1% 1.9% 5.0% 4.3% 2.5% 6.8%-Private 1.0% 1.3% 2.3% 1.2% 1.7% 2.9%- Total 4.1% 3.2% 7.3% 5.5% 4.1% 9.7%

Estimated GDP in Rs. Millions 42,419 53,446Estimated Population 1,073,355 1,090,381Source: Bank Staff Estimates based on 1991-92 HEES, public finance data, budget data and GDP trends.

15. The data in Table 6 shows that private expenditures in education and health are quite highamnounting to 2.3 percent of GDP (of which 1.3 percent is in health). Total public and privateexpenditures in social services amounted to 7.3 percent of GDP in 1991-92; this share is projected to haverisen to 9.3 percent of GDP (6.8 percent public and 2.9 percent private). These expenditure levels equal$122 per capita for education and $91 per capita for health in 1993-94 ($90 and $71 respectively in 1991-92) which is in line with other middle-income countries. Nevertheless, these levels of expenditures willneed to increase in the future because of the basic changes going on in Mauritius. On the one hand, theeconomy is going to need more and more manpower with higher and technical education; while on the otherhand, there is an epidemiological transition going on with a fall in the incidence of contagious andinfectious diseases and a rise in the incidence of non-communicable diseases (such as cardio-vasculardiseases and diabetes). Higher and technical education are much more expensive than basic primary and


secondary education. Non-communicable diseases are much more expensive to treat than infectiousdiseases like malaria or diarrhea. These changes imply the need for significantly higher amounts of publicand private resources in the future for education and health.

National Capacity to Monitor Poverty

16. There is considerable national capacity to monitor poverty trends and use these trends to developstrategy. Regular household budget and consumption surveys are carried out and the Government is aboutto start a national poverty study. This study will include participative surveys to assess the view-point ofthe poor.

.Appendix Cpage I of 7

Appendix C: MA TRIX OF ALTERNA TIVE PENSION SYSTEMS IN OECD COUNTRIES

Public pension schemes Private (occupational) pension schemesType of benefit

Retirement Type of benefit Coverage ( % of (average grossCountry age Coverage (maximum gross Financing working replacement rate Financing Taxation Redistribution

MNF replacemcnt rate) population) including socialsecurity)

Australia 65/60 All residents Lump sum (40%) Pay-as-you-go Voluntary (60%) Lump-sum pcnsions Funded(53%)

Belgium 65/60 All workers Pensions linked to Pay-as-you-go Voluntary (5%) Pensions linked to Funded - Employer and - Involves veryAverage earning salary(60%) employee' few workersduring working contributions - Concerns 80%/o-life (60%) deductible 900/o of managers

- Pensions liablefor income tax,with tax credit

Canada 65/65 All residents Lump-sum and Pay-as-you-go Voluntary (45%) Lump-sum pensions Funded - Employer andsupplementary or linked to salary employeepensions linked to (70%) contributionsaverage earnings deductible up to aduring working ceilinglife (35%) - Pensions taxed

Denmark 67/67 All residents Lump sum (25%) Pay-as-you-go Compulsory Lump sum pensions Funded - Employer and(68%) employee

contributionsdeductible-Pensions liablefor income tax

(continued)

Appendix Cpage I of 7

Appendix C. MA TRIXOFALTERNATIVE PENSIONSYSTEMS INOECD COUNTRIE.S (continued)



M/F replacement rate) population) including socialsecurity)

Finland 65/65 All workers Lump sum and Pay-as-you-go Compulsory Pensions linked to E.mployees: - Employercomplements (100%) salary (60%) funded; contributionslinked to average Farmers and deductibleearnings during self- -Employeeworking life employed: contributions

pay as you deductible up togo 15% of annual

salary- Pensions liablefor income tax

France 60/60 All workers Pensions linked to Pay-as-you-go Compulsory Pensions linked to Pay-as-you- - Employer andaverage earnings (80%) salary (65%) go for share employeeof best 10 years of pension contributions(50%) <compulsory deductible

minimum - Pensions liableFunded for income taxplans forshare ofpension>compulsoryminimum

Germany 65/65 All workers Pensions linked to Pay-as-you-go Voluntary (65%) Lump sum pensions Mainly book - Employer - Few workersaverage earnings or linked to salary reserve contributions affectedduring working (66%) deductible - Involves alllife -Employee managerial staff(50%) contributions

taxed below norm- Pensions taxed

(continued)


Appendix C: MATRlI OF AL.TERNA TI VE PENSION SYSTEMS IN OECD COUNTRIFS (continued)




Greece 65/60 All employees Pensions linked to Pay-as-you-go Voluntary (40%) Pensions linked to Funded - Employer andaverage earnings salary (67%) employeeof last 2 years contributions(70%) deductible

- Pensions liablefor income tax

Iceland 67/67 All residents Lump sum Pay-as-you-go Funded - Pensions liablefor income tax

Ireland 66/66 All workers Lump sum (25%) Pay-as-you-go Voluntary (50%) Pension linked to Pay-as-you- - Employer -Membershipsalary (59%) go or funded contributions terms more

deductible favorable for- Employee managers thancontributions workersdeductible up to aceiling up to aceiling- Lump sumpayments exempt- Pensions liablefor income tax

(continued)


Appendix C: AMTRL'f OFALTERNA TIVE PENSION SYSTEMS IN OECD COUNTRIES (continued)




Italy 60/65 Employees, self- Pensions linked to Pay-as-you-go Voluntary (5%) Pension linked to Pension - Employer andemployed, average earnings salary (60%) defined by employeecertain of last 5 years collective contributionsprofessional (80%) agreement: deductiblecategories funded or

pay-as-you-go. Pensionplansmanaged byinsurancecompanies:funded

Japan 60/60 Partly lump sum, 60% -Contributionspartly pensions deductiblelinked to average - Pensions taxedearnings overworking life(64%)

Luxembourg 65/65 All residents Partly lump sum, Pay-as-you-go Voluntary Pension linked to Mainly book - Employer -Generallypartly pensions salary (67%) reserve contributions complementarylinked to average deductible cover reserved forearnings over - Employec high-levelworking life contributions employees(64%) deductible up to a

ceiling- Pensions liablefor income tax

(continued)


Appendix C: MATRLY OFALTERNATI VE PENSION SYSTEMS IN OECD COUNTRIES (continued)


Retiremcnt Type of benefit Coverage ( % of (average grossCountry age Coverage (maximum gross Financing working replacement rate Financing Taxation Redistribution


Netherlands 65/65 All residents Lump sum (70%) Pay-as-you-go Voluntary (50%) Pension linked to Funded - Employer andsalary (61%) employee

contributionspartially and fullydeductible- Pensions liablefor income tax

New Zealand 60/60 All residents Lump sum (45%) Pay-as-you-go Voluntary (22%) L.ump sum or Mainly -Employer andpensions linked to funded employeesalary (77%) contributions

taxed- Lump sumpayments exempt- Pensions exempt

Norway 67/67 All workers L.ump sum and Pay-as-you-go Voluntary (25%) Pensions linked to Funded - Contributionspensions salary (65%) deductiblecomplementary - Pensions liablepensions linked to for income taxaveragc camingsduring workinglife (68%)

(continued)


Appendix C: MATRIX OFALTERNATIVEPENSIONSYSTEMS INOECD COUNTRIES (continued)


Retirement Type of benefit Coverage ( % of (average grossCountry age Covcrage (maximum gross Financing working replacement rate Financing Taxation Redistribution


Portugal 65/62 All workers Pensions linked to Pay-as-you-go Voluntary Pensions linked to Funded Employeraverage eamings salary (67%) contributionsof best 5 of last 10 considered asyears (80%) costs up to a

maximum of 15%of wage costs- Employercontributionsexempt- Pensions partlyor whollydeductible up tocertain ceilings

Spain 65/65 All workers Pensions linked to Pay-as-you-go Voluntary (3%) Lump sum (74%) Funded - Employer - Concems allaverage eamings contributions middle/seniorof last 8 years deductible managers(100%) - Employee

contfibutionsdeductiblc up to aceiling- Pensions liablefor income tax

Sweden 65/65 All workers Lump sum and Pay-as-you-go Compulsory Pensions linked to Funded - Employeepensions linked to (100%) salary (65%) contributionsincome (80%) partially

deductible (since1991)- Pensions liablefor income tax

(continued)Appendix C: AL4TRLV' OF ALTERAA TIIlE PE\SION SYSTEA IS IN OECD COl 'ivTRIMS (continued)


_ Public pension schemes Private (occupational) pension schemesType of benefit

Retirement Type of benefit Coverage ( % of (average gross

Country age Coverage (maximum gross Financing working replacement rate Financing Taxation Redistribution

M/F replacement rate) population) including social.__________________________ security)

Switzerland 65/62 All employees Lump sum and Pay-as-you-go Compulsory Pension linked to Funded - Concerns few

over 24 pensions linked to salary (72%) workers

average eamings - Concerns

over working life mainly managers

(60%)

United Kingdom 65/60 All residents Lump sum and Pay-as-you-go Voluntary (50- Pensions linked to Funded - Employer and - Concems most

pensions linked to 60%) salary (68%) employee workers

average earnings contributions - Concerns

over working life deductible managers in

(40%) - Pension liable particularfor income taxexcept lump sumpayments

United States 65/65 All workers Pensions linked to Pay-as-you-go Voluntary (55%) Pensions linked to Funded - Employeeaverage eamings salary (68%) contributionsover working life deductible up to a

(41%) ceiling- Employeecontribu (ionstaxed- Employee liablefor income tax

Source: Pnvate Pensions and Public Policy, OECL) Social Policy Studies No. 9, Paris, 1992, pp. 34-38.

APPENDIX DPage I of 2

APPENDIXD: IMPORT TAX STRUCTURE AND REVENUES(Sorted by Average Effective Tax Rate and Presented by HS Chapter)

1992 Avg. Avg. Prop.

DESCRIPTION Imports 1992 Tax Effect. Effect. TaxHS c.i.f. Recpts. (RS Tax Rate Tax Rate Recpts. (RS

CHAP. (RS mil.) mil.) (%) (%) mil.)41 Raw hides and skins (other than furskins) and leather 114.77 0.00 0.00 5.00 650 Silk 144.90 0.00 0.00 5.00 751 Wool, fine or coarse animal hair, horsehair, yarn and woven fabric 770.86 0.00 0.00 5.00 3952 Cotton 2630.69 0.00 0.00 5.00 13255 Man-made staple fibres 666.72 0.00 0.00 5.00 3358 Special woven fabrics, tufted textile fabrics, lace, tapestries, embroidery 320.30 0.00 0.00 5.00 1660 Knitted or crocheted fabrics 639.15 0.00 0.00 5.00 3254 Man-made filaments 452.17 0.37 0.08 5.00 2386 Railway or tramway, locomotives, rolling-stock and parts thereof 24.10 0.02 0.06 5.00 I53 Other vegetable textile fibers, paper yam and woven fabrics of paper ya 15.85 0.02 0.13 5.0088 Aircraft, spacecraft, and parts thereof 517.55 1.06 0.20 5.00 2610 Cereals 549.99 3.69 0.67 5.00 2780 Tin and articles thereof 14.42 0.11 0.76 5.00 159 Impregnated, coated, covered or laminated textile articles 107.11 1.20 1.12 5.00 571 Natural or cultured pearls, precious or semi-precious stones, precious m 702.11 7.87 1.12 5.00 354 Dairy produce, birds' eggs, natural honey, edible prod. of animals 596.20 7.60 1.27 5.00 3047 Pulp of wood or of other fibrous cellulosic material, waste and scrap of 2.28 0.03 1.32 5.00 01 Live animals -animal products 91.88 1.99 2.17 5.00 5

23 Residues & waste from the food ind., and prepared animal fodder 109.26 2.76 2.53 5.00 52 Meat and edible meat offal 315.72 .899 2.82 5.00 163 Fish and crustaceans, molluscs and other aquatic investebrates 318.61 11.72 3.68 5.00 1 65 Products of anim. origin, not elsewhere specified of included 14.47 0.58 4.01 5.00 16 Live trees and other plants, bulbs, roots and the like, cut flowers 2.74 0.11 4.01 5.00 0

49 Printed books, newspapers, pictures and other products of the printing i 226.58 9.65 4.26 5.00 117 Edible vegetables and certain roots and tubers 153.53 6.67 4.34 5.00 891 Clocks and watches and parts thereof 344.24 15.00 4.36 5.00 1731 Fertilisers 121.45 5.76 4.74 5.00 630 Pharmaceutical products 393.10 18.69 4.75 5.00 2015 Anim. or veg. fats and oils and their cleavage products prepared 317.96 15.54 4.89 5.00 1611 Products of the milling industry, malt, starches, inulin, wheat gluten 94.58 6.88 7.27 7.27 756 Wadding, felt & nonwovens, spec. yams, twine, cordage, ropes and cab 35.99 2.65 7.36 7.36 332 Tanning or dyeing extracts, tannins & their derivatives, dyes, pigments 262.67 19.36 7.37 7.37 1926 Orcs, slag and ash 0.00 0.00 7.69 8.00 089 Ships, boats and floating structures 29.90 2.46 8.23 8.23 275 Nickel and articles thereof 0.95 0.08 8.42 8.42 028 Inorganic chem., organic or inorganic compounds of precious metals 169.66 14.42 8.50 8.50 1438 Miscellaneous chemical products 285.85 24.45 8.55 8.55 2445 Cork and articles of cork 4.08 0.36 8.82 8.82 016 Prepared foodstuffs, beverages, spirits and vinegar, tobacco 151.93 13.80 9.08 9.08 1461 Art of apparel & clothing accessories, knitted or crocheted 129.09 12.60 9.76 9.76 1312 Oil seeds and oleaginous fruits, misc. grains, seeds and fruit 21.47 2.31 10.76 10.76 248 Paper and paperboard, articles of paper pulp, of paper or of paperboard 429.11 46.49 10.83 10.83 4644 Wood and articles of wood, wood charcoal 376.40 45.00 11.96 11.96 4579 Zinc and articles thereof 14.99 1.93 12.88 12.88 281 Other base metal , cermets, articles thereof 0.37 0.05 13.51 13.51 029 Organic chemicals 122.90 17.02 13.85 13.85 17

APPENDIX DPage 2 of 2

25 Salt, sulphur, earths and stone, plastering materials, lime & cement 583.61 85.69 14.68 14.68 8672 Iron and steel 512.13 76.37 14.91 14.91 7692 Musical instruments, parts and accessories of such articles 13.01 1.99 15.30 15.30 213 Lac, gums, resins and other vegetable saps and extracts 16.05 2.55 15.89 15.89 314 Veg. planting materials, veg. products not elsewhere specified 12.70 2.10 16.54 16.54 284 Nuclear reactors, boilers, machinery and mech. appliances, parts thereo 2356.98 404.68 17.17 17.17 40562 Articles of apparel and clothing accessories, not knitted or crocheted 218.46 37.69 17.25 17.25 3890 Optical, photographic, cinematographic, measuring, checking, precisio 322.85 57.29 17.75 17.75 5796 Misc. manufactured articles 162.29 31.19 19.22 19.22 3142 Articles or leather, saddlery and hamess, travel goods, handbags 52.43 10.12 19.30 19.30 109 Coffee, tea, mate and spices 34.98 6.88 19.67 19.67 739 Plastics and articles thereof 614.66 122.37 19.91 19.91 12278 Lead and articles thereof 1.81 0.39 21.55 21.55 046 Manufactures of straw, of esparto or of other plaiting basketwa 3.77 0.85 22.55 22.55 174 Copper and articles thereof 42.11 9.74 23.13 23.13 1076 Aluminium and articles thereof 105.58 27.04 25.61 25.61 2782 Tools, implements, cultery, spoons and forks, of base metal, parts there 107.80 27.75 25.74_ 25.74 2885 Electrical machinery and equipment and parts thereof sound recorders 1492.51 388.72 26.04 26.04 38973 Articles of iron or steel 504.50 133.10 26.38 26.38 13335 Albuminoidal substances, modified starches, glues, enzymes 26.92 7.58 28.16 28.16 840 Rubber and articles thereof 242.24 75.32 31.09 31.09 7519 Preparation of cereals, flour, starch or milk, pastrycooks' products 151.36 48.98 32.36 32.36 4963 Other made up textile articles, sets, worn clothing and wom textile artic 30.48 9.92 32.55 32.55 1070 Glass and glassware 238.05 77.49 32.55 32.55 7765 Headgear and parts thereof 30.68 10.33 33.67 33.67 1021 Miscellaneous edible preparations 168.10 57.00 33.91 33.91 578 Edible fruit and nuts, peel of citrus fruit or melons 134.82 47.38 35.14 35.00 47

68 Articles of stone, plaster, cement, asbestos, mica or similar materials 61.95 22.13 35.72 35.00 2264 Footwear, gaiters and the like, parts of such articles 102.75 41.15 40.05 35.001 3617 Sugars and sugar confectionery 40.86 16.41 40.16 35.00 1469 Ceramic products 207.21 84.24 40.65 35.00 7383 Misc. articles of base, metal 135.15 55.56 41.11 35.00 4720 Preparation of vegetables, fruit, nuts or other parts of plants 93.13 38.67 41.52 35.00 3395 Toys, games & sports requisites, parts and accessories thereof 89.79 37.70 41.99 35.00 3134 Soap, organic surface-active agents, washing prep., lubrificating PRE 52.06 22.43 43.08 35.00 1837 Photographic or cinematographic goods 54.83 25.98 47.38 35.00 1927 Mineral fuels, mineral oils & prod. of their distillation, bituminous 1735.40 851.88 49.09 35.00 60787 Vehicles other than railway or tramway rolling-stock, and parts and acc 1339.13 696.68 52.02 35.00 46918 Cocoa and cocoa preparations 38.68 21.56 55.74 35.00 1497 Works of art, collectors' pices and antiques 0.57 0.32 56.14 35.00 094 Fumiture, bedding, mattresses, mattress supports, cushions and similar 119.84 70.41 58.75 35.00 4233 Essential oils & resinoids, perfumery, cosmetic or toilet preparations 69.16 50.21 72.60 35.00 2466 Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-cro 3.96 2.89 72.98 35.00 167 Prepared feathers and down and articles made of feathers or of down, a 6.14 5.36 87.30 35.00 243 Furskins and artificial fur manufactures thereof 0.01 0.01 100.00 35.00 057 Carpets and other textile, floor coverings 12.69 14.07 110.87 35.00 424 Tobacco and manufactured tobacco substitutes 5.25 6.36 121.14 35.00 293 Arms and ammunition, parts and accessories thereof 9.01 13.58 150.72 35.00 336 Explosives, pyrotechnic prod., matches, pyrophoric alloys, certain com 6.85 10.54 153.87 35.00 222 Beverages, spirits and vinegar 58.16 129.24 222.21 35.00 2026 Ores, slag and ash 25232.11 4307.08 17.07 15.81 3989

Table I Population and Vital Statistics, 1952-92 APPENDIX E

1952 1962 1972 1983 1986 1987 1988 1989 1990 1991 1992

Total Population* 514,748 699,954 850,968 1,001,691 1,028,390 1,036,082 1,043,239 1,051,260 1,058,775 1,070,128 1,084,401Island of Mauritius 501,415 681,619 826,199 968,609 994,319 1,001,607 1,009,332 1,017,307 1,024,571 1,035,807 1,049,967Island of Rodrigues 13,333 18,335 24,769 33,082 34,041 34,475 33,907 33,953 34,204 34,321 34,434

Crude Birth RateIsland of Mauritius 44.3 38.5 24.8 20.6 18.3 19.1 19.9 20.6 21.3 20.7 21.1Island of Rodrigues 49.3 42.1 34.7 26.3 26.2 25.9 25.1 23.7 22.3 21.3

Crude Death RateIsland of Mauritius 14.7 9.3 7.9 6.5 6.7 6.6 6.6 6.8 6.7 6.6 6.5Island of Rodrigues 10.1 9.3 6.4 5.6 5.2 5.5 5.5 5.8 5.3 4.6

Infant Mortality RateIsland of Mauritius 81.3 60.1 63.8 25.6 26.3 24.2 22 21.6 19.9 18.1 18.4Island of Rodrigues 76 75.4 51.6 48.8 42.4 44.4 40.7 40.7 30.9 24.6

Fertility Rate 76.2 66.9 69.4 71.3 73.4 75.2 75.5 76.9

Notes: (*) Excludes Islands of Agalega and Saint BrandonCrude birth rate refers to the number of live births per 1,000 mid-year population. Crude death rate refers to the number of deaths per 1,000 mid-year population.Infant mortality rate refers to the number of infant (aged under one year) deaths per year per 1,000 live births in the same year.Calories per capita are as percent of requirements.Source: Annual Digest of Statistics and Digest of Demographic Statistics; Government of Mauritius

Table 1I Social Indicators and Employment, 1952-92 APPENDIX E

1972 1983 1987 1988 1989 1990 1991 1992

PopulationL ife expect. at birth-Male 61 64 65 65 65 65.6Life expect. at birth-Female 66 71 72 73 73 _ 73.4

Labor forceParticipation rate -Male 83 80 82 83 83 83 85Participation rate -Female 20 28 42 43 43 44 40Unemployment Rate 16 19 5 3 3 3 3

EducationIsland of Mauritius

Primary -Enrolment Ratio 92 95 104 100 99 103 106 107Primary -Pupil-teacher Ratio _ _ 36 34 34 33 33 30Secondary -Enrolment Ratio 34 44 45 47 49 49 50 50Secondary -Pupil-teacher Ratio 22 22 19 20 21 21 20 21

Island of RodriguesPrimary -Enrolment Ratio _ _ _ _ _ _ _Primary -Pupil-teacher Ratio _ _ 33 34 34 32 32 29Secondary -Enrolment RatioSecondary -Pupil-teacher Ratio _ _ 22 24 28 28 27 27

Food, health, and nutrition (1969-71) (1979-8S) (1988-90)Calories 2351 2701 2897

Share from Vegetable Prod. 92.4 88.5 87.4Share from Animal Prod. 7.6 11.5 12.6

Proteines (grams) 49.5 61.8 70Share from Vegetable Prod. 74.6 63.8 62.0Share from Animal Prod. 25.4 36.2 38.0

Fat (grams) 50 64.7 65.2Share from Vegetable Prod. 79.4 76.5 66.9Share from Animal Prod. 20.6 23.5 33.1

Inhabitants per Pysician* 4107 1300 _ _ 900Hospital bed population ratio* 328 292 285 _ _ 307

HousingPercent owner occupied 52 66 _ 76Percent with electricity 70 93 100 97Percent with piped water 99 99 98 _ 99 -

Percent with telephone 13 24 31Energy consumption per capita 200 385 490

Notes: (*) For 1971. 1983, 1987, 1990 and 1992 respectively.Sources: FAO Production Yearbook, 1992; Government of Mauritius; World Bank staff estimates..

Table 111.1 GDP by Sector in Current Prices, 1984-97 APPENDIX EIn millions of Mau Rs

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Provisional Estimates - ----- Projections------------------

Primary Production 1736 2123 2510 2884 3067 3370 3895 4093 4464 4514 4820 5155 5522 5915

Agriculture 1736 2123 2510 2884 3067 3370 3895 4093 4464 4514 4820 5155 5522 5915Sugar 1166 1538 1905 2124 2177 2355 2675 2658 2906 2730 2950 3144 3368 3608Other 570 585 605 760 890 1015 1220 1435 1558 1784 1870 2010 2153 2307

Secondary Production 3168 4056 5154 6401 7541 8707 10225 11684 13371 15427 17600 20500 23889 27448

Mining & Quarrying 19 20 22 25 27 30 37 45 54 66 80 76 82 89Manufacturing 2163 2864 3790 4841 5627 6365 7461 8274 9361 10671 12205 14329 16776 19289

Sugar Milling 326 438 605 676 597 652 720 727 821 755 835 1003 1174 1350Export Processing Zone 865 1333 1860 2585 3125 3450 3975 4400 5000 5746 6575 7881 9227 10609Other Manufacturing 972 1093 1325 1580 1905 2263 2766 3147 3540 4170 4795 5445 6375 7330

Construction 690 775 880 1045 1370 1735 2220 2590 3006 3485 4065 4644 5409 6301Electricity, Gas, Water 296 397 462 490 517 577 507 775 950 1205 1250 1450 1622 1771

Services 7126 7701 8741 10410 12593 14877 17670 20314 22851 26562 30580 35565 41223 45045

Hotels & Restaurants 340 340 415 535 660 815 1055 1180 1400 1700 2000 2667 3092 3378Trade 1300 1494 1880 2427 3125 3725 4400 4920 5500 6415 7275 8891 10306 11261Transport, Storage & Communica 1372 1510 1775 2075 2425 2880 3490 4200 4810 5430 6180 7469 8657 9459Finance, Real Estates. etc. 2050 2190 2335 2482 2723 3210 3900 4497 4972 5617 6360 7362 8533 9324

o/w Housing 1460 1535 1580 1610 1715 1900 2110 2290 2500 2755 3035 3734 4328 4730Government Services 1379 1447 1580 2035 2680 2987 3262 3640 4005 4875 5875 6402 7420 8108Other Services 685 720 756 856 980 1260 1563 1877 2164 2525 2890 2774 3215 3513

GDP at Factor Cost 12030 13880 16405 19695 23201 26954 31790 36091 40686 46503 53000 61219 70634 78408Sugar Sector 1492 1976 2510 2800 2774 3007 3395 3385 3727 3485 3785 4147 4542 4958Other 10538 11904 13895 16895 20427 23947 28395 32706 36959 43018 49215 57072 66092 73450

Net Indirect Taxes 2320 2738 3235 3881 4622 5191 6245 6763 7240 8425 9150 10383 12025 13381Indirect Taxes 2355 2784 3347 4071 4890 5535 6634 7166 7718 8740 9350 10633 12275 13631Subsidies 35 46 112 190 268 344 389 403 478 315 200 250 250 250

GDP at Market Prices 14350 16618 19640 23576 27823 32145 38035 42854 47926 54928 62150 71602 82659 91788

Source: Government of Mauritius-Central Statistical Office and World Bank Staff Estimates

Table 111.2 GDP by Sector in Constant 1987 Prices, 1984-97 APPENDIX E

In millions of Mau Rs

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Provisionad Estimates -. - .--------- -Projections ....................

Primary Production 2490 2771 2976 2884 2732 2518 2764 2711 2888 2668 2565 2763 2846 2931

Agriculture 2490 2771 2976 2884 2732 2518 2764 2711 2888 2668 2565 2763 2846 2931

Sugar 1709 1967 2222 2124 1924 1684 1884 1792 1919 1632 1542 1588 1636 1685

Other 781 804 754 760 808 834 880 919 969 1037 1023 1175 1210 1247

Secondary Production 4220 4812 5681 6401 6983 7431 8038 8486 9090 9615 10210 11348 12619 13834

Mining & Quarrying 23 23 24 25 26 27 29 31 34 37 41 43 44 46

Manufacturing 3024 3486 4228 4841 5225 5478 5901 6170 6574 6916 7331 8210 9154 10024

Sugar Milling 521 625 704 676 608 532 597 587 634 546 516 531 547 563

Export Processing Zone 1208 1571 2119 2585 2895 3069 3284 3448 3655 3874 4107 4760 5458 6059

Other Manufacturing 1253 1290 1405 1580 1722 1877 2020 2135 2284 2480 2679 2893 3139 3406

Construction 809 874 962 1045 1223 1357 1527 1649 1814 1923 2058 2263 2535 2839

Electricity, Gas. Water 364 429 467 490 509 569 581 636 668 739 781 832 886 926

Services 8791 9064 9516 10410 11189 11932 12650 13258 14104 15063 15974 16491 16949 17604

Hotels & Restaurants 364 388 442 535 599 656 728 749 824 915 988 1020 1048 1089

Trade 1780 1859 2023 2427 2706 2896 3026 3163 3353 3588 3803 3926 4035 4191

Transport, Storage & Communica 1688 1759 1878 2075 2262 2443 2580 2711 2928 3133 3293 3399 3494 3629

Finance, Real Estate, etc. 2237 2313 2382 2482 2599 2778 2981 3136 3304 3499 3712 3833 3939 4091

o/w Housing 1517 1553 1580 1610 1644 1685 1732 1789 1862 1936 2013 2079 2136 2219

Government Services 1942 1957 1976 2035 2116 2193 2292 2372 2467 2590 2746 2835 2913 3026

Other Services 780 787 815 856 907 966 1043 1127 1228 1339 1432 1479 1520 1579

GDP at Factor Cost 15501 16646 18173 19695 20904 21881 23452 24455 26082 27346 28749 30602 32414 34369

Sugar Sector 2230 2592 2926 2800 2532 2216 2481 2379 2554 2177 2057 2119 2183 2248

Other 13271 14054 15247 16895 18372 19665 20971 22076 23528 25171 27143 28860 30656 32531

Net Indirect Taxes 2633 2816 3234 3881 4269 4440 4751 4912 5108 5503 5095 5311 5642 5995



Table 111.3 GDP By Sector, 1984-97 APPENDIX EPercentage Share of GDP in Market Prices

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Provisional Estimates ---------------------Projections-...................

Primary Production 12.1 12.8 12.8 12.2 11.0 10.5 10.2 9.6 9.3 8.2 7.8 7.2 6.7 6.4

Agriculture 12.1 12.8 12.8 12.2 11.0 10.5 10.2 9.6 9.3 8.2 7.8 7.2 6.7 6.4Sugar 8.1 9.3 9.7 9.0 7.8 7.3 7.0 6.1 5.0 4.7 4.4 4.1 3.9Other 4.0 3.5 3.1 3.2 3.2 3.2 3.2 3.3 3.3 3.2 3.0 2.8 2.6 2.5

Secondary Production 22.1 24.4 26.2 27.2 27.1 27.1 26.9 27.3 27.9 28.1 28.3 28.6 28.9 29.9

Mining&Quarrying 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1Manufacturing 15.1 17.2 19.3 20.5 20.2 19.8 19.6 19.3 19.5 19.4 19.6 20.0 20.3 21.0

Sugar Milling 2.3 2.6 3.1 2.9 2.1 2.0 1.9 1.7 1.7 1.4 1.3 1.4 1.4 1.5Export Processing Zone 6.0 8.0 9.5 11.0 11.2 10.7 10.5 10.3 10.4 10.5 10.6 11.0 11.2 11.6Other Manufacturing 6.8 6.6 6.7 6.7 6.8 7.0 7.3 7.3 7.4 7.6 7.7 7.6 7.7 8.0

Construction 4.8 4.7 4.5 4.4 4.9 5.4 5.8 6.0 6.3 6.3 6.5 6.5 6.5 6.9Electricity, Gas, Water 2.1 2.4 2.4 2.1 1.9 1.8 1.3 1.8 2.0 2.2 2.0 2.0 2.0 1.9

Services 49.7 46.3 44.5 44.2 45.3 46.3 46.5 47.4 47.7 48.4 49.2 49.7 49.9 49.1

Hotels & Restaurants 2.4 2.0 2.1 2.3 2.4 2.5 2.8 2.8 2.9 3.1 3.2 3.7 3.7 3.7Trade 9.1 9.0 9.6 10.3 11.2 11.6 11.6 11.5 11.5 11.7 11.7 12.4 12.5 12.3Transport, Storage & Communica 9.6 9.1 9.0 8.8 8.7 9.0 9.2 9.8 10.0 9.9 9.9 10.4 10.5 10.3Finance, Real Estate, etc. 14.3 13.2 11.9 10.5 9.8 10.0 10.3 10.5 10.4 10.2 10.2 10.3 10.3 10.2

o/w Housing 10.2 9.2 8.0 6.8 6.2 5.9 5.5 5.3 5.2 5.0 4.9 5.2 5.2 5.2Government Services 9.6 8.7 8.0 8.6 9.6 9.3 8.6 8.5 8.4 8.9 9.5 8.9 9.0 8.8Other Services 4.8 4.3 3.8 3.6 3.5 3.9 4.1 4.4 4.5 4.6 4.7 3.9 3.9 3.8

GDP at Factor Cost 83.8 83.5 83.5 83.5 83.4 83.9 83.6 84.2 84.9 84.7 85.3 85.5 85.5 85.4Sugar Sector 10.4 11.9 12.8 11.9 10.0 9.4 8.9 7.9 7.8 6.3 6.1 5.8 5.5 5.4Other 73.4 71.6 70.7 71.7 73.4 74.5 74.7 76.3 77.1 78.3 79.2 79.7 80.0 80.0

Net Indirect Taxes 16.4 16.8 17.0 17.3 17.6 17.2 17.4 16.7 16.1 15.9 15.0 14.9 14.9 14.9

GDP at Market Prices 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0Discrepancy 0.2 0.3 0.6 0.8 1.0 1.1 1.0 0.9 1.0 0.6 0.3 0.3 0.3 0.3


Table 111.4 GDP By Expenditure in Current Prices, 1984-97 1/ APPENDIX EIn millions of Mau Rs

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Provisional Estimates - ------------ Projecionrs--------------.

Consumption 11676 13033 14076 17117 20724 24786 29296 32505 35846 41615 47645 54179 62256 68102

Private 10089 11338 12247 14882 17791 21325 25581 28333 31176 36170 41134 47066 54094 59394

Government 1/ 1588 1696 1829 2235 2933 3462 3715 4172 4671 5446 6511 7114 8162 8708

Gross Domestic Investment 3155 3900 4252 5961 8522 9798 11578 11981 13707 16779 19725 21472 24155 27306

Fixed Investment 2595 3200 3890 5090 7990 8565 11865 12385 13630 15835 19200 21472 24155 27306

Private 2128 2624 3139 4058 6697 7132 10329 10505 11335 13204 16137 17973 20236 23099

Government 1/ 467 576 751 1032 1293 1433 1536 1880 2296 2631 3063 3499 3919 4207

Change in Stocks 560 700 362 871 532 1233 -287 -404 77 944 525 0 0 0

Gross Domestic Expenditure 14831 16933 18328 23078 29246 34584 40874 44486 49553 58394 67370 75651 86410 95409

Exports 6989 8895 11919 15639 18565 21363 25619 27861 29759 33515 37860 43496 50598 57090

Goods 5201 6639 9056 11493 13455 15166 17855 18992 20272 22992 26100 29861 34725 39340

Non-Factor Services 1788 2256 2863 4146 5110 6197 7764 8869 9487 10523 11760 13635 15873 17750

Imports 7470 9210 10607 15141 19988 23802 28458 29535 31386 37020 43080 47545 54349 60711

Goods 5723 7050 8286 11692 15598 18208 21775 22209 22931 27505 32573 39175 44481 49544

Non-Factor Services 1747 2160 2321 3449 4390 5594 6683 7326 8455 9515 10507 8371 9869 11167

Resource Balance -481 -315 1312 498 -1423 -2439 -2839 -1674 -1627 -3505 -5220 -4049 -3752 -3621


Net Factor Service Income -626 -700 -729 -533 -593 -303 -339 89 171 -120 -122 -373 -405 -454

Net Current Transfers 267 336 402 523 962 1038 1223 1244 1348 1321 772 920 1003 1051

GNP at Market Prices 13724 15918 18911 23043 27230 31842 37696 42943 48097 54808 62028 71229 82254 91334

Gross Domestic Saving 2674 3585 5564 6459 7099 7359 8739 10349 12080 13313 14505 17423 20403 23686

(GDP-C) = (I+RB)Private 2105 2724 4183 4647 5246 5235 6038 7468 9220 10297 10733 13977 16070 18426

Government 569 862 1381 1812 1853 2125 2702 2881 2860 3016 3772 3446 4333 5260

Gross National Saving 2315 3221 5237 6449 7468 8094 9623 11682 13599 14514 15155 17970 21002 24282(GDS+FSY+NCT)

Private 2671 3389 4931 5702 6699 7344 8653 10623 12402 13107 13296 16675 19127 21039

Government -356 -168 306 747 769 751 971 1059 1197 1407 1860 1296 1875 3244

Memorandum Items:Average Exch. Rate (Rs/US$) 13.800 15.442 13.466 12.878 13.438 15.250 14.863 15.652 15.560 16.730 18.490 20.340 21.870 22.920

Population (Thousands) 1012 1021 1030 1041 1054 1064 1093 1102 1111 1119 1128 1137 1147 1156

GNP (US$ Million) 994 1031 1404 1789 2026 2088 2536 2744 3091 3276 3355 3502 3761 3985

GNP Per Capita (US$) 983 1010 1364 1719 1923 1963 2320 2490 2783 2926 2973 3079 3280 3448

Notes: The following relationships apply: Gross Dom. Expenditure (GDX)= Consumption (C) + Gross Dom. Investment (1); Resource Balance (RB) = Exports (XGNFS) - Imports (MGNFS);

GDP at Market Prices (GDP=GDX+RB); Net Factor Serv. Income (NSY); Net Current Transfers (NCT); GNP at MP (GDP+FSY); Gross Domestic Saving (GDS=GDP-C=I+RB);Gross National Saving (GNS=GDS+ FSY + NCT).

1/ Consolidated Central GovernmentSource: Government of Mauritius-Central Statistical Office and World Bank Staff Estimates

Table 111.5 GDP By Expenditure in Constant 1987 Prices, 1984-97 APPENDIX EIn millions of Mau Rs

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997PrNvisional Estimates --------------------- Projections--------------------

Consumption 13326 13997 14833 17117 18496 19725 20757 21475 22534 23744 25029 26299 27892 29363Private 11296 11913 12717 14882 16104 17115 18121 18750 19683 20983 22257 23500 24929 26322Government 2030 2084 2116 2235 2392 2610 2636 2725 2851 2761 2772 2798 2963 3041

Gross Domestic Investment 3658 3813 4677 5961 7300 6948 8391 7655 8299 9221 9982 9887 10077 10891Fixed Investment 3093 3402 4081 5090 7175 6670 8225 7990 8415 8807 9863 9887 10077 10891

Private 2545 2780 3317 4058 6014 5554 7161 6776 7003 7071 8662 8618 8790 9585Government 548 623 765 1032 1161 1116 1064 1214 1412 1736 1200 1268 1287 1305

Change in Stocks 565 411 596 871 125 278 166 -335 -116 413 119 0 0 0

Gross Domestic Expenditure 16984 17810 19511 23078 25796 26673 29148 29130 30833 32965 35011 36185 37969 40253

Exports 9309 10421 13231 15639 17531 18074 19552 20398 21098 22155 23503 23990 24767 25860Goods 6786 7721 9937 11493 12706 12831 13627 13905 14372 15147 15633 15893 16425 17255Non-Factor Services 2523 2699 3294 4146 4825 5243 5925 6493 6726 7008 7869 8097 8342 8605

Imports 8159 8768 11335 15141 18154 18426 20497 20162 20741 22252 24086 23762 24199 25131Goods 6251 7000 9713 11692 14167 14095 15684 15161 15154 16436 18597 18129 18342 18994Non-Factor Services 1908 1767 1621 3449 3987 4331 4813 5001 5587 5816 5489 5633 5857 6137

Import Capacity 7633 8468 12737 15639 16862 16538 18452 19019 19666 20145 21168 21739 22529 23632Terms-of-Trade Adjustment -1675 -1953 -494 0 -669 -1536 -1100 -1379 -1432 -2010 -2335 -2252 -2239 -2228

Resource Balance 1150 1653 1896 498 -623 -352 -945 236 357 -97 -584 228 568 729

Discrepancy 0 0 0 0 0 0 0 1 0 -19 -584 -500 -481 -618


Net Factor Service Income -685 -663 -769 -533 -539 -235 -244 61 113 -75 600 523 525 488Net Current Transfers 292 319 424 523 874 804 881 849 891 830 373 373 373 373

Gross National Product 17449 18799 20638 23043 24634 26086 27959 29428 31303 32774 34444 36436 38582 40851

Gross Domestic Saving 3133 3514 6080 6459 6008 5060 6346 6513 7224 7095 6480 7363 7926 8773(GDP-C) = (I + RB + DISC)

Private 5795 6611 7353 4647 4497 3458 4429 4631 5479 5566 4874 6007 6352 6937Government 12 378 1306 1812 1511 1602 1917 1882 1746 1529 1606 1356 1573 1837

Gross National Saving 2740 3169 5734 6449 6343 5629 6983 7423 8228 7850 7453 8259 8824 9634(GDS+FSY+NCT)

Private 6099 7135 7799 5702 5716 5063 6294 6731 7497 7137 6661 7749 8143 8501Government -417 -215 381 747 627 566 689 692 730 713 792 510 681 1133

Gross Domestic Income 16459 17510 20913 23576 24504 24785 27103 27988 29758 30839 31509 33661 35818 38136Gross National Income 15774 16847 20144 23043 23965 24550 26859 28049 29871 30764 32109 34184 36343 38624

Note: 1/ Deflated by Government consumption deflator.Source: Government of Mauritius-Central Statistical Office and World Bank Staff Estimates

Table 111.6 GDP By Expenditure Category, 1984-97 APPENDIX EPercent of GDP at Market Prices

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Proisional Est-nates------------Projections-----------

Consumption 81.4 78.4 71.7 72.6 74.5 77.1 77.0 75.9 74.8 75.8 76.7 75.7 75.3 74.2Private 70.3 68.2 62.4 63.1 63.9 66.3 67.3 66.1 65.0 65.8 66.2 65.7 65.4 64.7Government 11.1 10.2 9.3 9.5 10.5 10.8 9.8 9.7 9.7 9.9 10.5 9.9 9.9 9.5

Gross Domestic Investment 22.0 23.5 21.6 25.3 30.6 30.5 30.4 28.0 28.6 30.5 31.7 30.0 29.2 29.7Fixed Investment 18.1 19.3 19.8 21.6 28.7 26.6 31.2 28.9 28.4 28.8 30.9 30.0 29.2 29.7

Private 14.8 15.8 16.0 17.2 24.1 22.2 27.2 24.5 23.7 24.0 26.0 25.1 24.5 25.2Public 3.3 3.5 3.8 4.4 4.6 4.5 4.0 4.4 4.8 4.8 4.9 4.9 4.7 4.6

Change in Stocks 3.9 4.2 1.8 3.7 1.9 3.8 -0.8 -0.9 0.2 1.7 _

Gross Domestic Expenditure 103.4 101.9 93.3 97.9 105.1 107.6 107.5 103.8 103.4 106.3 108.4 105.7 104.5 103.9

Exports, GNFS 48.7 53.5 60.7 66.3 66.7 66.5 67.4 65.0 62.1 61.0 60.9 60.7 61.2 62.2Imports, GNFS 52.1 55.4 54.0 64.2 71.8 74.0 74.8 68.9 65.5 67.4 69.3 66.4 65.8 66.1

Resource Balance -3.4 -1.9 6.7 2.1 -5.1 -7.6 -7.5 -3.9 -3.4 -6.4 -8.4 -5.7 -4.5 -3.9

GDP at Market Prices 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Net Factor Service Income -4.4 -4.2 -3.7 -2.3 -2.1 -0.9 -0.9 0.2 0.4 -0.2 -0.2 -0.5 -0.5 -0.5Net Current Transfers 1.9 2.0 2.0 2.2 3.5 3.2 3.2 2.9 2.8 2.4 1.2 1.3 1.2 1.1

Gross National Product 95.6 95.8 96.3 97.7 97.9 99.1 99.1 100.2 100.4 99.8 99.8 99.5 99.5 99.5

Gross Domestic Saving 18.6 21.6 28.3 27.4 25.5 22.9 23.0 24.1 25.2 24.2 23.3 24.3 24.7 25.8(GDP-C)=(I+RB+DISC)

Private 14.7 16.4 21.3 19.7 18.9 16.3 15.9 17.4 19.2 18.7 17.3 19.5 19.4 20.1Government 4.0 5.2 7.0 7.7 6.7 6.6 7.1 6.7 6.0 5.5 6.1 4.8 5.2 5.7

Gross National Saving (GNS) 16.1 19.4 26.7 27.4 26.8 25.2 25.3 27.3 28.4 26.4 24.4 25.1 25.4 26.5(GDS+FSY+NCT)

Private 18.6 20.4 25.1 24.2 24.1 22.8 22.7 24.8 25.9 23.9 21.4 23.3 23.1 22.9Government -2.5 -1.0 1.6 3.2 2.8 2.3 2.6 2.5 2.5 2.6 3.0 1.8 2.3 3.5


Table 111.7 GDP Annual Rate of Change, 1984-97 APPENDIX E

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Provisional Estimates - -------- ------ Projections-------------------GDP at Market Prices 4.8 7.3 10.0 10.1 6.8 4.6 7.2 4.1 6.2 5.5 4.8 5.7 5.9 6.0

By Economic SectorPrimary Production 0.8 11.3 7.4 -3.1 -5.3 -7.8 9.8 -1.9 6.5 -7.3 -3.9 3.0 3.0 3.0Secondary Production 9.3 14.0 18.1 12.7 9.1 6.4 8.2 5.6 7.1 5.8 8.9 11.1 11.2 9.7Services 3.8 3.1 5.0 9.4 7.5 6.6 6.0 4.8 6.4 6.8 7.1 3.2 2.8 3.9

By Expenditure CategoryConsumption 4.4 5.0 6.0 15.4 8.1 -6.6 5.2 3.5 4.9 5.4 5.4 5.0 6.1 5.2Gross Domestic Investment 20.2 4.2 22.7 27.4 22.5 -4.8 20.8 -8.8 8.4 11.1 8.3 -1.0 1.9 6.8Exports, GNFS 4.1 11.9 27.0 18.2 12.1 3.1 8.2 4.3 3.4 5.0 6.1 2.1 3.2 4.4Imports, GNFS 9.0 7.0 22.0 25.9 16.4 8.7 13.0 9.6 3.6 7.3 8.2 -1.3 1.8 3.9

Gross National Saving 3.7 15.7 80.9 12.5 -1.6 -11.3 24.1 6.3 10.8 0.2 0.4 10.2 7.4 10.8

Gross National Income 10.3 6.8 19.6 14.4 4.0 2.4 9.4 4.4 6.5 4.4 4.4 6.5 6.3 6.3Source: Government of Mauritius-Central Statistical Office and World Bank Staff Estimates

Table 111.8 Composition of Gross Domestic Fixed Capital Formation, 1984-93 APPENDIX E

In millions of Maur Rs

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993Provisonal

Gross Dom. Fixed Capital For. 2300 2530 3026 3630 3981 8565 11865 12385 13900 15400

GDFCF By Capital Good:Residential Buildings 662 631 650 678 712 1495 2060 2700 3750 5000

Non-residential buildings 311 540 542 596 766 1620 2140 2425 2360 2400

Other Construction and Works 445 364 494 516 460 1025 1370 1450 1625 1760

Transport Equipment 167 185 324 441 728 1195 2595 1275 1755 1920

Passenger Cars 42 55 98 140 140 380 475 490 575 630

Other 125 130 226 301 588 815 2120 785 1180 1290

Machinery and Other Equipmen 715 810 1016 1399 1315 3230 3700 4535 4410 4320

GDFCF By Sector:Agriculture, Hunt., Fishing 122 120 115 242 118 200 207 480 530 665

Manufacturing 442 580 804 1082 1096 2130 2070 2280 2115 2405

Electricity, Gas & Water 280 231 179 156 158 605 385 1305 1110 595

Construction 25 60 97 100 97 250 615 205 330 405

Trade and Restaurants/Hotels 162 269 235 348 386 1305 1930 2005 1700 1715

Transport and Communication 388 341 700 725 1053 1855 3235 2020 2405 2620

Finance, Real Estate & Insuran 704 697 724 748 824 1690 2300 3035 4370 5670

Government Services 91 122 113 154 171 325 845 735 1030 990

Other Services 86 110 59 75 78 205 278 320 310 335

GDFCF By Sector in shares: 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Agriculture, Hunt., Fishing 5.3 4.7 3.8 6.7 3.0 2.3 1.7 3.9 3.8 4.3

Manufacturing 19.2 22.9 26.6 29.8 27.5 24.9 17.4 18.4 15.2 15.6

Electricity, Gas & Water 12.2 9.1 5.9 4.3 4.0 7.1 3.2 10.5 8.0 3.9

Construction 1.1 2.4 3.2 2.8 2.4 2.9 5.2 1.7 2.4 2.6

Trade and Restaurants/Hotels 7.0 10.6 7.8 9.6 9.7 15.2 16.3 16.2 12.2 11.1

Transport and Communication 16.9 13.5 23.1 20.0 26.5 21.7 27.3 16.3 17.3 17.0

Finance, Real Estate & Insuran 30.6 27.5 23.9 20.6 20.7 19.7 19.4 24.5 31.4 36.8

Govermnent Services 4.0 4.8 3.7 4.2 4.3 3.8 7.1 5.9 7.4 6.4

Other Services 3.7 4.3 1.9 2.1 2.0 2.4 2.3 2.6 2.2 2.2

Source: Government of Mauritius-Central Statistic Office and World Bank Staff Estimates

Table IV. I Balance of Payments, 1984-97 APPENDIX E


1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Provisional 1/ Estimates - ------------ Projections-------

Exports of Goods, FOB 5201 6639 9056 11493 13455 15166 17855 18992 20272 22992 26100 29861 34725 39340

Imports of Goods, CIF 6555 8181 9191 13028 17212 20130 23873 24380 25246 31631 32573 39175 44481 49544Imports of Goods, FOB 5723 7050 8286 11692 15598 18208 21775 22209 22931 27505 29470 35553 40254 44690

Freight and Insurance 832 1131 905 1336 1614 1922 2098 2171 2315 4126 3103 3622 4227 4854

Net Non-Factor Services 873 1227 1447 2033 2334 2525 3179 3714 3347 5134 1253 5265 6004 6583Receipts 1788 2256 2863 4146 5110 6197 7764 8869 9487 10523 11760 13635 15873 17750Payments excl. Freight & Ins. 915 1029 1416 2113 2776 3672 4585 5155 6140 5389 10507 8371 9869 11167


Net Factor Income -626 -700 -729 -533 -593 -303 -339 89 171 -120 -122 -373 -405 -454

Factor Receipts 40 30 76 180 357 778 831 1292 1417 1240 1384 1354 1561 1730Factor Payments 666 730 805 713 950 1081 1170 1203 1246 1360 1506 1726 1966 2185

Current Private Transf, Net 267 336 402 523 962 1038 1223 1244 1348 1321 772 920 1003 1051

Current Account Balance -840 -679 985 488 -1054 -1704 -1955 -341 -108 -2304 -4570 -3501 -3153 -3024

Long-Term Capital Inflow 287 168 246 1120 1892 666 2355 1847 607 1279 1335 812 2079 2176Direct Foreign Investment 102 124 94 219 323 549 609 297 233 807 945 208 1314 1466

Official Transfers (Grants) 124 216 337 232 215 275 372 235 296 27 30 0 0 0Net Medium & LT Loans -51 278 135 953 1639 717 1457 1315 78 445 361 605 766 710

Disbursements 607 942 660 1584 3037 1525 2333 2661 1680 1953 1990 2456 3067 3474Repayments 658 664 525 631 1398 808 877 1346 1603 1508 1629 1851 2301 2764

Other Inflows, Net 112 -450 -320 -284 -285 -874 -83 - - - - - - -

Private Capital and E&O 2/ 843 797 426 1213 1635 3264 3049 1437 217 2034 1773 3673 2211 2110

Overall Balance 290 286 1656 2820 2473 2227 3448 2943 716 1009 -1461 984 1137 1262

Change in Net Reserves -290 -286 -1656 -2820 -2473 -2227 -3448 -2943 -716 -1009 1461 -984 -1137 -1262

(- indicates increase)Use of Fund Credit -116 -225 -285 -422 -551 -564 -654 -344 -140 0 0 0 0 0Other Reserve Changes -174 -60 -1371 -2398 -1922 -1662 -2794 -2598 -576 -1009 1461 -984 -1137 -1262

Memorandum Item:Stock of Reserves 570 882 2450 4428 6428 8049 11062 13500 14216 15225 13763 14747 15885 17147

ImplicitEarnings onReserves 7.0% 3.4% 3.1% 4.1% 5.6% 9.7% 7.5% 7.0% 10.0% 8.1% 10.1% 9.2% 9.8% 10.1%Reserves in Months of Imports 1.04 1.29 3.20 4.08 4.48 4.80 5.56 6.64 6.76 5.78 5.07 4.52 4.29 4.15

Note: 1/ Projections for Capital Account2/ E&O: Errors and Omissions

Source: Government of Mauritius-Central Statistical Office, Bank of Mauritius, International Monetary Fund, and World Bank Staff Estimates

Table IV.2 Balance of Payments, 1984-97 APPENDIX E

In millions of US Dollars

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Provisional 1/ Estimates --------------------Projections--------------------

Exports of Goods. FOB 377 430 673 892 1001 994 1201 1213 1303 1374 1412 1468 1588 1716

Imports of Goods. CIF 475 530 683 1012 1281 1320 1606 1558 1622 1891 1762 1926 2034 2162

ImportsofGoods, FOB 415 457 615 908 1161 1194 1465 1419 1474 1644 1594 1748 1841 1950

Freight and Insurance 60 73 67 104 120 126 141 139 149 247 168 178 193 212

Net Non-Factor Services 63 79 107 158 174 166 214 237 215 307 68 259 275 287

Receipts 130 146 213 322 380 406 522 567 610 629 636 670 726 774

Payments excl. Freight & Ins. 66 67 105 164 207 241 308 329 395 322 568 412 451 487


Net Factor Income -45 -45 -54 -41 -44 -20 -23 6 11 -7 -7 -18 -18 -20

Factor Receipts 3 2 6 14 27 51 56 83 91 74 75 67 71 76

Factor Payments 48 47 60 55 71 71 79 77 80 81 81 85 90 95

Cuent Private Transf, Net 19 22 30 41 72 68 82 79 87 79 42 45 46 46

Current Account Balance -61 -44 73 38 -78 -112 -132 -22 -7 -138 -247 -172 -144 -132

Long-Term Capital Inflow 18 11 18 87 141 44 158 118 39 76 72 40 95 95

Direct Foreign Investment 5 8 7 17 24 36 41 19 15 48 51 10 60 64

Official Transfers (grants) 9 14 25 18 16 18 25 15 19 2 2 0 0 0

Net Medium & LT Loans -4 18 10 74 122 47 98 84 5 27 20 30 35 31

Disbursements 44 61 49 123 226 100 157 170 108 117 108 121 140 152

Repayments 48 43 39 49 104 53 59 86 103 90 88 91 105 121

Other Inflows, Net 8 -29 -24 -22 -21 -57 -6 - - - - - - -

Private Capital, Errors & Omissi 63 52 32 94 122 214 205 92 14 122 96 181 101 92

Overall Balance 21 19 123 219 184 146 232 188 46 60 -79 48 52 55

Change in Net Reserves -21 -19 -123 -219 -184 -146 -232 -188 -46 -60 79 -48 -52 -55

(- indicates increase)o/w Use of Fund Credit -8 -15 -21 -33 -41 -37 -44 -22 -9 - - - - -

Other Reserve Changes -13 -4 -102 -186 -143 -109 -188 -166 -37 -60 79 -48 -52 -55

Exchange Rate (Rs. / US$) 13.800 15.442 13.466 12.878 13.438 15.250 14.863 15.652 15.56 16.73 18.49 20.34 21.87 22.92

(Period Average)

Note: 1/ Projections for Capital AccountSource: Government of Mauritius-Central Statistical Office. Bank of Mauritius, International Monetary Fund, and World Bank Staff Estimates

Table V Foreign Debt, 1984-97 APPENIEIn millions of Mau Rs

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Prov isional Estimates ----- -------- Projections--------------------

Debt ServiceInterest 666 529 684 610 802 883 902 906 857 1360 1506 1726 1966 2185Principal (M&LT) 658 263 296 412 484 625 580 720 1151 1508 1629 1851 2301 2764IMF Repurchases 482 1019 808 580 685 686 713 360 0 - - -

ShortTerm 0 62 40 39 40 61 74 78 47Private Creditors 88 602 350 322 1062 381 565 923 840

Total 1894 2475 2179 1962 3073 2637 2835 2987 2895 2868 3135 3578 4267 4948

Exports GNFS 6989 8895 11919 15639 18565 21363 25619 27861 29759 33515 37860 43496 50598 57090Exports GNFS+Transfers 7296 9261 12397 16342 19884 23179 27673 30397 32524 36076 40016 45770 53163 59871

DebtService Ratio 27 28 18 13 17 12 11 11 10 9 8 8 8 9Debt Service Ratio (incl Pvt Tran 26 27 18 12 15 11 10 10 9 8 8 8 8 8


Table VI. I Genea Government Operations, 1983184-96/97 APPENDX EIn millions of Maur Rs

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 199495 1995/96 199/97proAvisona Estimates ------------P oietos -- --------

Total Revenue 3221 3563 4094 5165 6397 7577 8770 10025 11214 12015 14112 15015 17285 19416

Tax Revemic 2803 2993 3504 4316 5516 6657 7685 9049 9343 10265 11689 12762 14692 16503

Taxes on Income and Profits 425 400 355 519 704 980 1232 1387 1565 1465 1450 1891 2176 2443Taxes on Property 94 131 160 200 313 373 469 609 571 716 786 735 846 950Taxes on Goods and Services 660 706 777 951 1167 1551 1751 2183 2493 2868 3358 3526 4357 5337TaxesonInternationalTrade 1604 1731 2180 2605 3279 3697 4118 4743 4624 5145 6030 6538 7224 7664

On Itnports 1162 1361 1721 2055 2639 3055 3683 4248 4196 4711 5630 6104 6745 7155On Exports 442 370 459 550 640 642 435 495 429 434 400 434 479 508

Odter Tax Revenue 20 25 32 41 53 56 115 127 89 71 65 72 89 109

Contrib. to Social Welf. Progs 151 167 195 224 256 363 397 463 622 693 766 712 820 921Nontax revenue 267 403 395 625 625 557 688 513 1249 1057 1657 1541 1774 1992

Property Income 147 284 270 473 437 349 452 248 867 730 1087 1011 1164 1307Other 120 119 125 152 188 208 236 265 382 541 570 530 610 685

Total Expend. & Net Lending 4224 4553 4967 5665 6900 8596 9651 10790 12470 13127 15504 16092 17811 19325

Current Expenditures 3638 3858 4134 4514 5554 6883 7963 8891 10229 10606 12707 12700 13856 14924Wages 1233 1290 1387 1484 2019 2587 2859 2946 3287 3594 4711 5369 6008 6704Goods & Services 304 348 366 421 546 714 763 862 1249 1211 1375 1567 1754 1957Interest payments 860 989 1069 1081 1049 1119 1629 1833 1811 1515 1704 2121 2086 1839

Domestic Interest 576 644 736 777 709 764 1277 1473 1495 1211 1384 1593 1513 1211Foreign Interest 284 345 333 304 340 355 352 360 316 304 320 529 572 628

Transfers to Loc. Government 155 155 160 171 224 298 315 350 402 423 553 607 669 738Other Trnsfers 841 909 956 1116 1460 1800 2000 2438 2858 3169 3598 3036 3340 3686Discrepancy 245 167 197 241 256 365 397 462 622 694 766 0 0 0

Capital Expenditure 349 585 567 935 1129 1457 1409 1663 2097 2494 2768 3358 3916 4358Net Lending 237 110 266 216 217 256 279 236 144 27 29 34 39 43

Primary Deficit 443 694 1029 1732 1892 1813 2436 2967 2796 2924 3109 4436 5515 6331Current Account Balance -417 -295 -40 651 843 694 807 1134 985 1409 1405 2314 3429 4492

Overall Balance -1003 -990 -873 -500 -503 -1019 -881 -765 -1257 -1112 -1392 -1077 -526 91

Financing 1003 990 873 500 503 1019 881 765 1257 1112 1392 1077 526 -91

External, Net -88 887 119 336 817 -394 -53 -223 --305 -234 312 226 150 22Budgetary Grants 52 166 233 188 214 68 116 61 - 25 78 173 31 34 36Budgetary Loans -140 721 -114 148 603 -462 -169 -284 -330 -312 139 195 116 -14

Disbursements 522 1245 362 529 1147 674 298 239 227 553 766 1066 1128 1233Amortization 662 524 476 381 544 1136 467 523 557 865 627 871 1012 1247

Domestic. Net 1091 103 754 164 -314 1413 934 988 1562 1346 1080 851 376 -113Banking System 713 -235 273 -440 -675 -35 407 734 1922 1222 972 1072 1482 669Nonbank Borrowing 378 338 481 604 361 1448 527 254 -360 124 108 -221 -1105 -782

(Revenues Exclusive of Contrib. to Social Welfare Prorrams)Tot. Rev. and Grants 3122 3396 3899 4941 6141 7214 8373 9562 10592 11322 13346 14303 16465 18495Total Exp. and Net Lending 3979 4386 4771 5424 6644 8231 9254 10328 11848 12433 14738 16092 17811 19325Overall Balance -857 -990 -872 -483 -503 -1017 -881 -766 -1257 -1111 -1392 -1789 -1346 -830

Source: Government of Mauritius-Ministry of Finance and World Bank Staff Estimates

Table VI.2 General Government Operations, 1983/84-96/97 APPENDIX E

Composition of Subtotals, in Percent

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97

Provisional Estimates .. -Projections----------......

Total Revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Tax revenue 87.0 84.0 85.6 83.6 86.2 87.9 87.6 90.3 83.3 85.4 82.8 85.0 85.0 85.0

Taxes on Income and Profits 13.2 11.2 8.7 10.0 11.0 12.9 14.0 13.8 14.0 12.2 10.3 12.6 12.6 12.6

Taxes on Property 2.9 3.7 3.9 3.9 4.9 4.9 5.3 6.1 5.1 6.0 5.6 4.9 4.9 4.9

Taxes on Goods and Services 20.5 19.8 19.0 18.4 18.2 20.5 20.0 21.8 22.2 23.9 23.8 23.5 25.2 27.5

Taxes on International Trade 49.8 48.6 53.2 50.4 51.3 48.8 47.0 47.3 41.2 42.8 42.7 43.5 41.8 39.5

OnImports 36.1 38.2 42.0 39.8 41.3 40.3 42.0 42.4 37.4 39.2 39.9 40.7 39.0 36.9

On Exports 13.7 10.4 11.2 10.6 10.0 8.5 5.0 4.9 3.8 3.6 2.8 2.9 2.8 2.6

Other Tax Revenue 0.6 0.7 0.8 0.8 0.8 0.7 1.3 1.3 0.8 0.6 0.5 0.5 0.5 0.6

Contrib. to Social Welf. Progs 4.7 4.7 4.8 4.3 4.0 4.8 4.5 4.6 5.5 5.8 5.4 4.7 4.7 4.7

Nontax revenue 8.3 11.3 9.6 12.1 9.8 7.4 7.8 5.1 11.1 8.8 11.7 10.3 10.3 10.3

Property Income 4.6 8.0 6.6 9.2 6.8 4.6 5.2 2.5 7.7 6.1 7.7 6.7 6.7 6.7

Other 3.7 3.3 3.1 2.9 2.9 2.7 2.7 2.6 3.4 4.5 4.0 3.5 3.5 3.5

Total Expend. & Net Lending 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Current Expenditures 86.1 84.7 83.2 79.7 80.5 80.1 82.5 82.4 82.0 80.8 82.0 78.9 77.8 77.2

Wages 29.2 28.3 27.9 26.2 29.3 30.1 29.6 27.3 26.4 27.4 30.4 33.4 33.7 34.7

Goods & Services 7.2 7.6 7.4 7.4 7.9 8.3 7.9 8.0 10.0 9.2 8.9 9.7 9.8 10.1

Interest payment 20.4 21.7 21.5 19.1 15.2 13.0 16.9 17.0 14.5 11.5 11.0 13.2 11.7 9.5

Domestic Interest 13.6 14.1 14.8 13.7 10.3 8.9 13.2 13.7 12.0 9.2 8.9 9.9 8.5 6.3

Foreign Interest 6.7 7.6 6.7 5.4 4.9 4.1 3.6 3.3 2.5 2.3 2.1 3.3 3.2 3.3

Transfers to Loc. Government 3.7 3.4 3.2 3.0 3.3 3.5 3.3 3.2 3.2 3.2 3.6 3.8 3.8 3.8

Other Transfers 19.9 20.0 19.2 19.7 21.2 20.9 20.7 22.6 22.9 24.1 23.2 18.9 18.8 19.1

Discrepancy 5.8 3.7 4.0 4.3 3.7 4.2 4.1 4.3 5.0 5.3 4.9 0.0 0.0 0.0

Capital Expenditure 8.3 12.8 11.4 16.5 16.4 16.9 14.6 15.4 16.8 19.0 17.9 20.9 22.0 22.5

NetLending 5.6 2.4 5.4 3.8 3.1 3.0 2.9 2.2 1.2 0.2 0.2 0.2 0.2 0.2

Prim Def(-) as % of Tot Rev. 13.8 19.5 25.1 33.5 29.6 23.9 27.8 29.6 24.9 24.3 22.0 29.5 31.9 32.6

CAB as % of Tot Rev. -12.9 -8.3 -1.0 12.6 13.2 9.2 9.2 11.3 8.8 11.7 10.0 15.4 19.8 23.1

Overall Bal as % of Tot Rev. -31.1 -27.8 -21.3 -9.7 -7.9 -13.4 -10.0 -7.6 -11.2 -9.3 -9.9 -7.2 -3.0 0.5

Financing 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

External, Net -8.8 89.6 13.6 67.2 162.4 -38.7 -6.0 -29.2 -24.3 -21.0 22.4 21.0 28.5 -24.3

Budgetary Grants 5.2 16.8 26.7 37.6 42.5 6.7 13.2 8.0 2.0 7.0 12.4 2.9 6.4 -39.6

Budgetary Loans -14.0 72.8 -13.0 29.6 119.9 -45.3 -19.2 -37.1 -26.3 -28.1 10.0 18.1 22.0 15.2

Disbursements 52.0 125.8 41.5 105.8 228.0 66.1 33.8 31.2 18.1 49.7 55.0 98.9 214.4 -1356.1

Amortization 66.0 52.9 54.5 76.2 108.2 111.5 53.0 68.4 44.3 77.8 45.0 80.8 192.4 -1371.3

Domestic, Net 108.8 10.4 86.4 32.8 -62.4 138.7 106.0 129.2 124.3 121.0 77.6 79.0 71.5 124.3

Banking System 71.1 -23.7 31.3 -88.0 -134.2 -3.4 46.2 95.9 152.9 109.9 69.8 99.5 281.7 -735.4

Nonbank Borrowing 37.7 34.1 55.1 120.8 71.8 142.1 59.8 33.2 -28.6 11.2 7.8 -20.5 -210.1 859.7

Source: Govermnent of Mauritius-Ministry of Finance and World Bank Staff Estimates

Table Vl.3 General Government Operations, 1983/84-96/97 APPENDIX EPercent of GDP at Market Prices

1983184 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97Prvosiona Estimates --------------.Proctjo .---

Total Revenue 23.8 23.0 22.6 23.9 24.9 25.3 25.0 24.8 24.7 23.4 24.1 22.5 22.4 22.3

Tax revenue 20.7 19.3 19.3 20.0 21.5 22.2 21.9 22.4 20.6 20.0 20.0 19.1 19.0 18.9Taxes on Income and Profits 3.1 2.6 2.0 2.4 2.7 3.3 3.5 3.4 3.4 2.8 3.9 3.9 3.9 3.9TaxesonProperty 0.7 0.8 0.9 0.9 1.2 1.2 1.3 1.5 1.3 1.4 1.3 1.1 1.1 1.1Taxes on Goods and Services 4.9 4.6 4.3 4.4 4.5 5.2 5.0 5.4 5.5 5.6 5.7 5.3 5.6 6.1TaxesoninternationalTrade 11.8 11.2 12.0 12.1 12.8 12.3 11.7 11.7 10.2 10.0 10.3 9.8 9.4 8.8

On Imports 8.6 8.8 9.5 9.5 10.3 10.2 10.5 10.5 9.2 9.2 9.6 9.1 8.7 8.2On Exports 3.3 2.4 2.5 2.5 2.5 2.1 1.2 1.2 0.9 0.8 0.7 0.6 0.6 0.6

OtherTax Revenue 0.1 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.2 0.1 0.1 0.1 0.1 0.1

Contrib o Soc. Welfare 1.1 1.1 1.1 1.0 1.0 1.2 1.1 1.1 1.4 1.3 1.3 1.1 1.1 1.1Nontax revenue 2.0 2.6 2.2 2.9 2.4 1.9 2.0 1.3 2.8 2.1 2.8 2.3 2.3 2.3

Property Income 1.1 1.8 1.5 2.2 1.7 1.2 1.3 0.6 1.9 1.4 1.9 1.5 1.5 1.5Other 0.9 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.8 1.1 1.0 0.8 0.8 0.8

Total Expend. & Net Lending 31.2 29.4 27.4 26.2 26.8 28.7 27.5 26.7 27.5 25.5 26.5 24.1 23.1 22.2

Current Expenditures 26.8 24.9 22.8 20.9 21.6 23.0 22.7 22.0 22.5 20.6 21.7 19.0 18.0 17.1Wages 9.1 8.3 7.7 6.9 7.9 8.6 8.1 7.3 7.2 7.0 8.0 8.0 7.8 7.7Goods&Services 2.2 2.2 2.0 1.9 2.1 2.4 2.2 2.1 2.8 2.4 2.3 2.3 2.3 2.2Interest paymuen 6.3 6.4 5.9 5.0 4.1 3.7 4.6 4.5 4.0 2.9 2.9 3.2 2.7 2.1

Domestic Interest 4.2 4.2 4.1 3.6 2.8 2.5 3.6 3.6 3.3 2.4 2.4 2.4 2.0 1.4Foreign Interest 2.1 2.2 1.8 1.4 1.3 1.2 1.0 0.9 0.7 0.6 0.5 0.8 0.7 0.7

Transfers to Loc. Goverment 1.1 1.0 0.9 0.8 0.9 1.0 0.9 0.9 0.9 0.8 0.9 0.9 0.9 0.8OtherTransfers 6.2 5.9 5.3 5.2 5.7 6.0 5.7 6.0 6.3 6.2 6.1 4.5 4.3 4.2Discrepancy 1.8 1.1 1.1 1.1 1.0 1.2 1.1 1.1 1.4 1.3 1.3 0.0 0.0 0.0

Capital Expenditure 2.6 3.8 3.1 4.3 4.4 4.9 4.0 4.1 4.6 4.8 4.7 5.0 5.1 5.0NetLending 1.7 0.7 1.5 1.0 0.8 0.9 0.8 0.6 0.3 0.1 0.1 0.1 0.1 0.0

Prinary Surplus(+)/Deficit(-) 3.3 4.5 5.7 8.0 7.4 6.0 6.9 7.3 6.2 5.7 5.3 6.6 7.1 7.3Current Account Balance -3.1 -1.9 -0.2 3.0 3.3 2.3 2.3 2.8 2.2 2.7 2.4 3.5 4.4 5.2

Overall Balance -7.4 -6.4 -4.8 -2.3 -2.0 -3.4 -2.5 -1.9 -2.8 -2.2 -2.4 -1.6 -0.7 0.1

Financing 7.4 6.4 4.8 2.3 2.0 3.4 2.5 1.9 2.8 2.2 2.4 1.6 0.7 -0.1

External, Net -0.7 5.7 0.7 1.6 3.2 -1.3 -0.2 -0.6 -0.7 -0.5 0.5 0.3 0.2 0.0Budgetary Grants 0.4 1.1 1.3 0.9 0.8 0.2 0.3 0.2 0.1 0.2 0.3 0.0 0.0 0.0Budgetary Loans -1.0 4.7 -0.6 0.7 2.3 -1.5 -0.5 -0.7 -0.7 -0.6 0.2 0.3 0.2 0.0Disbursements 3.8 8.0 2.0 2.4 4.5 2.2 0.8 0.6 0.5 1.1 1.3 1.6 1.5 1.4Amortization 4.9 3.4 2.6 1.8 2.1 3.8 1.3 1.3 1.2 1.7 1.1 1.3 1.3 1.4

Domestic, Net 8.0 0.7 4.2 0.8 -1.2 4.7 2.7 2.4 3.4 2.6 1.8 1.3 0.5 -0.1Baniking System 5.3 -1.5 1.5 -2.0 -2.6 -0.1 1.2 1.8 4.2 2.4 1.7 1.6 1.9 0.8Nonbank Borrowing 2.8 2.2 2.7 2.8 1.4 4.8 1.5 0.6 -0.8 0.2 0.2 -0.3 -1.4 -0.9

(Revenues Exclusive of Contrib. to Social Welfare ProRrains)Tot. Rev. and Grants 23.0 21.9 21.5 22.9 23.9 24.1 23.9 23.6 23.3 22.0 22.8 21.4 21.3 21.2Total Exp. and Net Lending 29.4 28.3 26.3 25.1 25.9 27.5 26.4 25.5 26.1 24.2 25.2 24.1 23.1 22.2Overall Balance -6.3 -6.4 -4.8 -2.2 -2.0 -3.4 -2.5 -1.9 -2.8 -2.2 -2.4 -2.7 -1.7 -1.0

Source: Government of Mauritius-Ministry of Finance and World Bank Staff Estimates

Table VI.4 Functional Classification Consolidated Government Expenditure 1983/84-96/97 APPENDIX EIn millions of current Mau Rs

1983/84 1984/85 1985/86 1986/87* 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1983/84-85/86 1987/88-92/93 1983/84-92/93Provisional Average Amn. % h5age Period ChI.

Public Admin. and Security 705 808 969 869 1245 1406 1802 2098 2275 2620 16.9 20.7 271.7General Public Services 669 772 932 528 810 823 965 1043 1226 1347 17.5 18.0 101.3Defence 36 36 37 40 53 73 120 153 176 197 5.1 31.5 446.7Pubic Order and Safety _ _ 301 382 510 718 902 873 1077 _ 24.5 257.7

Social Services 1465 1603 1692 1804 2335 2873 3759 4258 5195 5835 5.8 21.8 298.3Education 562 593 597 623 839 1063 1257 1444 1684 1822 2.2 19.9 224.2Health 303 336 376 384 484 625 768 871 931 1091 12.1 19.2 259.9Social Security and Welfare 501 555 605 679 814 1073 1154 1458 1765 1937 10.9 19.4 286.6Hous. and Comm. Amenities 74 62 57 55 124 53 302 320 480 791 -23.3 109.9 968.8Recreational, Cult., and Relig. 25 57 57 63 74 60 278 165 335 194 45.6 63.9 677.2

Economic Services 460 613 631 1125 1428 888 1724 1691 2136 2337 9.8 19.5 408.0Fuel and Energy 8 6 7 16 5 3 5 11 14 4 8.3 8.1 -52.5Agri. Forest. Fish., Hunt. 2/ 330 401 430 511 755 583 915 817 903 1064 3.9 16.6 222.4Industry 1/ 51 93 61 59 65 23 58 54 93 98 41.3 27.7 91.4Transp. and Communication 45 84 104 478 534 21 322 423 672 664 45.2 236.1 1375.6Other Economic Aff. and Serv. 26 29 29 61 69 258 425 386 454 507 5.2 61.9 1851.2

Other Expendinure 1112 1291 1395 1402 1470 1276 1820 2091 2132 1813 28.4 6.0 63.0Public Debt Interest 821 1002 1120 1081 1049 880 1337 1564 1470 1136 37.3 3.5 38.4TransferstoLocalGov. 155 161 161 174 227 298 315 350 401 438 12.1 17.1 182.6Developnment Works 136 128 114 147 194 0 101 100 114 110 1.5 -9.8 -19.1Other _ 7 3 98 66 76 148 129 531.1 2007.1

Total 3742 4315 4687 5200 6478 6443 9105 10137 11738 12605 13.4 16.6 236.8

(In shares of total)Public Admin. and Security 19 19 21 17 19 22 20 21 19 21 3.3 4.1 10.3Social Services 39 37 36 35 36 45 41 42 44 46 -2.6 5.3 18.2

Education 15 14 13 12 13 16 14 14 14 14 -5.3 4.0 -3.8Health 8 8 8 7 7 10 8 9 8 9 -0.3 3.5 6.9Social Security and Welfare 13 13 13 13 13 17 13 14 15 15 -1.2 4.2 14.8

Econonmic Services 12 14 13 22 22 14 19 17 18 19 3.4 0.1 50.8Transp. and Communication 0 0 0 0 0 0 0 0 0 0 -9.2 -8.8 -85.9

Other Expendituire 30 30 30 27 23 20 20 21 18 14 0.1 -9.5 -51.6Per. Avg. Per. Avg.

(In percent of GDP) 193SS/84-5/86 1987/ss-92193Public Admin. and Security 5.2 5.2 5.3 4.0 4.8 4.7 5.1 5.2 5.0 5.1 5.3 5.0Social Services 10.8 10.4 9.3 8.3 9.1 9.6 10.7 10.5 11.4 11.3 10.2 10.4

Education 4.1 3.8 3.3 2.9 3.3 3.5 3.6 3.6 3.7 3.5 3.8 3.5Health 2.2 2.2 2.1 1.8 1.9 2.1 2.2 2.2 2.1 2.1 2.2 2.1Social Security and Welfare 3.7 3.6 3.3 3.1 3.2 3.6 3.3 3.6 3.9 3.8 3.5 3.5

Economic Services 3.4 4.0 3.5 5.2 5.6 3.0 4.9 4.2 4.7 4.5 3.6 4.5Transp. and Communication 0.3 0.5 0.6 2.2 2.1 0.1 0.9 1.0 1.5 1.3 0.5 1.1

Other Expenditure 8.2 8.3 7.7 6.5 5.7 4.3 5.2 5.2 4.7 3.5 8.1 4.8

Notes: 1/ Mining and Mineral Resources, Manufacturing, and Construction only.2/ Includes subsidies to agriculture and fishing.

*I Budgetary Central Govermment (excludes Extra Budgetary units and Social Security.)Source: Government of Mauritius-Ministry of Finance and World Bank Staff Estimates

Table Vll Monetary Survey, 1983/84-96/97 APPENDIX EIn millions of Maur Rs and Percent

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97

Provisional Estimate -- Pro-e-ons-------------------

Net Foreign Assets 580 -1620 -837 1780 4602 6661 10111 13453 16557 16016 17972 20765 23623 26264Bank of Mauritius 342 -2013 -1362 1087 3639 5557 8558 11667 14654 14175 15906 18378 20908 23245Commercial Banks 239 393 525 693 963 1104 1553 1786 1904 1841 2066 2387 2716 3019

Net Domestic Credit 8661 9044 10199 10782 12222 13674 16201 19172 23075 28845 34937 39976 45902 50958Claims on Government 5559 4760 5074 4619 3938 3906 4311 5045 6968 8188 9082 9994 11476 12144Claims on Private Sector 3102 4284 5125 6163 8284 9768 11890 14127 16107 20656 25855 29982 34427 38814

Total Assets 9241 7424 9362 12562 16824 20335 26312 32625 39632 44861 52909 60741 69526 77222

Total Liabilities 9241 7424 9362 12562 16824 20335 26312 32625 39632 44861 52909 60741 69526 77222

Broad Money 5811 7180 8932 11774 15500 18460 22016 26767 32105 36475 43963 51082 58158 64523Money (Ml) 1927 1717 1993 2544 3199 3820 4529 5446 6591 7054 8502 9879 11247 12478Quasi-Money 3884 5463 6939 9230 12301 14640 17487 21321 25514 29421 35461 41203 46911 52044

Other Items Net 3430 244 430 788 1324 1875 4296 5858 7527 8386 8946 9659 11368 12700

(Annual change in stocks)

Broad Money 1369 1752 2842 3726 2960 3556 4751 5338 4370 7488 7120 7076 6364Net Foreign Assets -2200 783 2617 2822 2059 3450 3342 3104 -541 1956 2793 2858 2641Net Domestic Credit 383 1155 583 1440 1452 2527 2971 3903 5770 6092 5038 5927 5056-Claims on Government -799 314 -455 -681 -32 405 734 1923 1220 894 911 1482 669-Claims on Private Sector 1182 841 1038 2121 1484 2122 2237 1980 4549 5199 4127 4445 4387Other Items Net -3186 186 358 536 551 2421 1562 1669 859 560 713 1709 1332

(Annual percent chanrge)

Broad Money 23.6 24.4 31.8 31.6 19.1 19.3 21.6 19.9 13.6 20.5 16.2 13.9 10.9NetForeignAssets -379.1 -48.3 -312.7 158.5 44.7 51.8 33.1 23.1 -3.3 12.2 15.5 13.8 11.2Net Domestic Credit 4.4 12.8 5.7 13.4 11.9 18.5 18.3 20.4 25.0 21.1 14.4 14.8 11.0-Claims on Government -14.4 6.6 -9.0 -14.7 -0.8 10.4 17.0 38.1 17.5 10.9 10.0 14.8 5.8- Claims on Private Sector 38.1 19.6 20.3 34.4 17.9 21.7 18.8 14.0 28.2 25.2 16.0 14.8 12.7Other Items Net -92.9 76.2 83.3 68.0 41.6 129.1 36.4 28.5 11.4 6.7 8.0 17.7 11.7

(Annual change in percent of broad money at beginning of period)

BroadMoney 23.6 24.4 31.8 31.6 19.1 19.3 21.6 19.9 13.6 20.5 16.2 13.9 10.9NetForeignAssets -37.9 10.9 29.3 24.0 13.3 18.7 15.2 11.6 -1.7 5.4 6.4 5.6 4.5Net Domestic Credit 6.6 16.1 6.5 12.2 9.4 13.7 13.5 14.6 18.0 16.7 11.5 11.6 8.7-Claims on Government -13.7 4.4 -5.1 -5.8 -0.2 2.2 3.3 7.2 3.8 2.5 2.1 2.9 1.1- Claims on Private Sector 20.3 11.7 11.6 18.0 9.6 11.5 10.2 7.4 14.2 14.3 9.4 8.7 7.5Otheritems Net -54.8 2.6 4.0 4.6 3.6 13.1 7.1 6.2 2.7 1.5 1.6 3.3 2.3

Memo ItemrVelocity of Circulation 2.3 2.2 2.0 1.8 1.7 1.6 1.6 1.5 1.4 1.4 1.4 1.4 1 4 1.4Growth of Money (Ml) 8.9 -10.9 16.1 27.6 25.7 19.4 18.6 20.2 21.0 7.0 20.5 16.2 13.9 10.9

Source: Bank of Mauritius and World Bank Staff Estimates

Table VIII Export Processing Zone, Key Indicators 1984-93 APPENDIX E


1984 1985 1986 1987 1988 1989 1990 1991 1992 1993Provisional

Value Added in Current Prices 865 1333 1860 2580 3125 3450 3975 4400 4800 5300

Value Added in 1987 Prices 1209 1572 2120 2585 2895 3011 3284 3448 3620 3838

Value Added as % of GDPfc 7.2 9.6 11.3 13.1 13.5 12.8 12.5 12.2 11.8 11.4

GDFCF in Curr. Prices 210 340 560 655 870 900 690 630 560 600

GDFCF in 1987 Prices 250 361 588 655 781 701 480 410 350 360

Machinery as % of GDFCF 78.6 76.5 80.4 80.9 83.9 93.3 92.8 96.8 96.4 96.7

GDFCF as % of Total GDFCF 9.1 13.4 18.5 18.0 21.9 10.5 5.8 5.1 4.0 3.9

Employment 37522 53951 74015 87905 89080 88658 89906 90861 86937 87800

Empi. as % of Tot. Empl. 18.7 25.0 31.1 33.9 32.8 32.5 32.1 32.2 30.5 30.3

251

ExportsCurrPrices 2151 3283 4951 6567 8176 9057 11410 12136 13081 15000

Exports in 1987 Prices 2806 3818 5433 6567 7721 7663 8708 8885 9274 9882

Growth Rate of Exports _ 0.36 0.42 0.21 0.18 -0.01 0.14 0.02 0.04 0.07

As % of Total Exports 41.4 49.5 54.7 57.1 60.8 59.7 63.9 63.9 64.5 65.2

V.A. as % of EPZ Exports 40.2 40.6 37.6 39.3 38.2 38.1 34.8 36.3 36.7 35.3

V.A. as % of Total Exports 16.6 20.1 20.5 22.4 23.2 22.7 22.3 23.2 23.7 23.1

Earnings, Avg. Monthly _ 2210 2627 2950 3440 3875

Earnings, Avg. Daily _ 43 50 55 74 85

Earnings, Avg. Monthly 1987 Pri 2000 2151 2187 2357 2522

Earnings, Avg. Daily 1987 Prices 39 41 41 51 55

Index (1987=100))V.A. per Employee 109.6 99.1 97.4 100.0 110.5 115.5 124.2 129.0 141.6 148.6

Index (1988=100)V.A . per Employee _ _ - 100.0 104.5 112.4 116.8 128.1

Monthly Earnings, Average _ 100.0 107.6 109.4 117.9 126.1

Weekly Earnings. Average _ _ 100.0 116.3 127.9 172.1 197.7

Note: GDFCF: Gross Domestic Fixed Capital FormationSource: Government of Mauritius-Central Statistical Office and World Bank Staff Estimates

Table IX. I Sectoral Deflators of GDP, 1984-97 APPENDIX EIndex 1987=100

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Provisional Estimates ---- --- ..- Pro)oct,ons----------- ----

Primary Production 69.7 76.6 84.3 100.0 112.3 133.8 140.9 151.0 154.6 169.2 187.9 186.6 194.0 201.8

Agriculture 69.7 76.6 84.3 100.0 112.3 133.8 140.9 151.0 154.6 169.2 187.9 186.6 194.0 201.8Sugar 68.2 78.2 85.7 100.0 113.1 139.8 142.0 148.3 151.4 167.3 191.3 198.0 205.9 214.2Other 73.0 72.8 80.2 100.0 110.1 121.7 138.6 156.1 160.8 172.1 182.8 171.1 177.9 185.0

Secondary Production 75.1 84.3 90.7 100.0 108.0 117.2 127.2 137.7 147.1 160.5 172.4 180.7 189.3 198.4

Mining and Quarrying 82.6 88.3 91.7 100.0 103.8 111.1 127.6 145.2 158.9 176.6 194.6 179.7 186.9 194.3Manufacturing 71.5 82.2 89.6 100.0 107.7 116.2 126.4 134.1 142.4 154.3 166.5 174.5 183.3 192.4

Sugar Milling 62.6 70.1 85.9 100.0 98.2 122.6 120.6 123.9 129.4 138.4 161.9 188.9 214.7 239.6Export Processing Zone 71.6 84.9 87.8 100.0 107.9 112.4 121.0 127.6 136.8 148.3 160.1 165.6 169.1 175.1Other Manufacturing 77.6 84.7 94.3 100.0 110.6 120.6 136.9 147.4 155.0 168.1 179.0 188.2 203.1 215.2

Construction 85.3 88.6 91.5 100.0 112.0 127.9 145.4 157.1 165.7 181.2 197.6 205.2 213.4 221.9Electricity, Gas, Water 81.4 92.6 98.9 100.0 101.6 101.4 87.3 121.9 141.8 163.1 160.1 174.4 183.1 191.3

Services 81.1 85.0 91.9 100.0 112.5 124.7 139.7 153.2 162.0 176.3 191.4 215.7 243.2 255.9

Hotels & Restaurants 93.5 87.5 93.9 100.0 110.2 124.2 144.9 157.5 169.9 185.9 202.5 261.6 295.0 310.3Trade 73.0 80.4 92.9 100.0 115.5 128.6 145.4 155.5 164.0 178.8 191.3 226.5 255.4 268.7Transport, Storage & Communica 81.3 85.8 94.5 100.0 107.2 117.9 135.3 154.9 164.3 173.3 187.7 219.7 247.8 260.7Finance, Real Estates, etc. 91.6 94.7 98.0 100.0 104.8 115.6 130.8 134.7 140.2 160.5 171.3 192.1 216.6 227.9

o/w Housing 96.2 98.9 100.0 100.0 104.3 112.8 121.8 128.0 134.3 142.3 150.7 179.7 202.6 213.2Government Services 71.0 73.9 80.0 100.0 126.7 136.2 142.3 153.5 161.5 188.2 214.0 225.8 254.7 268.0Other Services 87.8 91.5 92.8 100.0 108.0 130.4 149.9 166.5 176.2 188.6 201.8 187.6 211.6 222.6

GDP at Factor Cost 77.6 83.4 90.3 100.0 111.0 123.2 135.6 147.6 154.6 160.1 184.4 200.0 217.9 228.1Sugar Sector 66.9 76.2 85.8 100.0 109.6 135.7 136.8 142.3 145.9 160.1 184.0 195.7 208.1 220.5Other 79.4 84.7 91.1 100.0 111.2 121.8 135.4 148.2 157.1 170.9 181.3 197.8 215.6 225.8

Net Indirect Taxes 88.1 97.2 100.0 100.0 108.3 116.9 131.4 137.7 142.9 153.1 179.6 195.5 213.1 223.2

GDPatMarketPrices 79.1 85.4 91.7 100.0 110.5 122.1 134.9 145.9 152.7 167.2 183.6 199.4 217.2 227.4


Table IX.2 Expenditure Deflators of GDP, 1984-97 APPENDIX EIndex 1987 =100

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Provisional Estimates --------------------- Projections-------------------

Consumption 87.6 93.1 94.9 100.0 112.0 125.7 141.1 151.4 159.1 175.3 190.4 206.0 223.2 231.9Private 89.3 95.2 96.3 100.0 110.5 124.6 141.2 151.1 158.4 176.7 200.5 200.3 217.0 225.6Government 78.2 81.4 86.4 100.0 122.6 132.6 140.9 153.1 163.8 197.2 234.9 254.2 275.4 286.4

Gross Domestic Investment 86.2 102.3 90.9 100.0 116.7 141.0 138.0 156.5 165.2 191.9 219.5 217.2 239.7 250.7Fixed Investment 83.9 94.1 95.3 100.0 111.4 128.4 144.3 155.0 162.0 179.8 194.7 217.2 239.7 250.7

Private 83.6 94.4 94.6 100.0 111.4 128.4 144.2 155.0 161.8 207.3 214.4 208.5 230.2 241.0Public 85.2 92.5 98.3 100.0 111.4 128.4 144.3 154.8 162.6 151.5 255.2 275.9 304.5 322.3

Change in Stocks 99.1 170.3 60.7 100.0 425.6 443.5 -172.9 120.6 -66.4 228.3 0.0 0.0 0.0 0.0

Gross Domestic Expenditure 87.3 95.1 93.9 100.0 113.4 129.7 140.2 152.7 160.7 177.1 192.4 209.1 227.6 237.0

Exports 75.1 85.4 90.1 100.0 105.9 118.2 131.0 136.6 141.1 151.3 161.1 181.3 204.3 220.8Goods 76.6 86.0 91.1 100.0 105.9 118.2 131.0 136.6 141.1 151.8 167.0 187.9 211.4 228.0Non-Factor Services 70.9 83.6 86.9 100.0 105.9 118.2 131.0 136.6 141.1 150.2 149.4 168.4 190.3 206.3

Imports 91.6 105.0 93.6 100.0 110.1 129.2 138.8 146.5 151.3 166.4 178.9 200.1 224.6 241.6Goods 91.6 100.7 85.3 100.0 110.1 129.2 138.8 146.5 151.3 167.4 175.1 216.1 242.5 260.8Non-Factor Services 91.6 122.2 143.2 100.0 110.1 129.2 138.8 146.5 151.3 163.6 191.4 148.6 168.5 182.0

GDP at Market Prices 75.7 81.8 88.3 100.0 110.5 122.1 134.9 145.9 153.7 167.2 183.6 199.4 217.2 227.4

Net Factor Service Income 91.6 105.0 93.6 100.0 110.1 129.2 138.8 146.5 151.3 159.1 -20.4 -71.3 -77.0 -93.1Net Current Transfers 91.6 105.0 93.6 100.0 110.1 129.2 138.8 146.5 151.3 159.1 207.0 246.7 268.9 281.6

GNP at Market Prices 78.7 84.7 91.6 100.0 110.5 122.1 134.8 145.9 153.6 167.2 180.1 195.5 213.2 223.6

Gross Domestic Saving 85.4 102.0 91.5 100.0 118.2 145.4 137.7 158.9 167.2 187.6 223.8 236.6 257.4 270.0(GDP-C) = (I+RB)

Private 36.3 41.2 56.9 100.0 116.7 151.4 136.3 161.2 168.3 185.0 220.2 232.7 253.0 265.6Government 1/ 4669.3 228.2 105.8 100.0 122.6 132.6 140.9 153.1 163.8 197.2 234.9 254.2 275.4 286.4

Gross National Saving (GNS) 84.5 101.6 91.3 100.0 117.7 143.8 137.8 157.4 165.3 184.9 203.3 217.6 238.0 252.0(GDS+FSY+NCT)

Private 43.8 47.5 63.2 100.0 117.2 145.0 137.5 157.8 165.4 183.7 199.6 215.2 234.9 247.5Government 85.3 77.9 80.1 100.0 122.6 132.6 140.9 153.1 163.8 197.2 234.9 254.2 275.4 286.4


Table IX.3 Exchange Rates, 1984-93 APPENDIX E

Index 1980= 100

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1993 1 1993 II 1993 III 1993 IV

RealEffectiveExchangeRate 1023 111.7 1152 1257 129.2 1293 130.1 131.9 1324 1274 128.5 127.5 1268 1274

(1980= 100)

Consumer Price Index 1446 154.3 156.8 1576 172.1 1939 220.0 235.4 2463 2722 261.8 269.6 2769 2807

(1980= 100)

Nominal Exchange Rates(Mau Rs/Partner, 1980 =100)

United States 179.6 201.0 1752 1676 174.9 1985 1934 2037 2025 229.7 2239 221.9 2340 2389

France 868 94.5 1069 1178 124.0 1314 150.1 1526 161 7 171 4 1706 171.7 1701 173.0

Germany 1147 124.1 1467 169.5 1810 191.9 2176 223.1 2357 2525 2489 249.2 253.5 2581

Italy 875 901 100.7 110.7 1151 1239 1383 140.6 1407 1250 124.2 126.3 1264 1232

Netherlands 1113 120.3 142.2 164.5 1759 186.0 211 2 2166 229.0 2458 2421 242.8 246 8 251.5

United Kingdom 1028 II0 110.5 117.8 1339 139.7 147.8 154.6 153.0 1482 1422 146.6 1515 152.7

Belgium-Luxembourg 909 990 114.7 131.3 139.1 147.3 169.3 174.4 184.2 1941 1944 195.0 1924 1947

La Reunion 868 945 106.9 117.8 1240 1314 150.1 152.6 161.7 1714 1706 171.7 1701 173.0

HongKong 114.3 1284 111.8 1069 1115 126.6 123.6 130.4 130.2 1477 144.0 142.8 1503 1538

Singapore 180.3 1956 172.3 1704 1861 217.9 2285 2525 266.2 3043 2909 293.7 3113 3221

Real Exchange Rates(Mau Rs/Partner, 1980 =100)

United States 1566 1701 148.6 1467 145.8 154.0 1394 1430 140.0 1479 1485 144.0 1485 1506

France 896 967 110.4 1250 123.8 120.5 1254 1229 127.4 1248 1283 126.2 1220 1229

Germany 93.9 973 113.0 1302 1290 124.7 1280 1269 133.3 1345 1364 133.9 1332 1344

Italy 1071 1128 131.2 150.4 150.4 152.7 1599 1615 162.5 1361 1385 138.2 1360 1321

Netherlands 923 956 111.3 127.2 1256 119.1 1221 1216 127.3 1263 1278 1254 1254 1264

United Kingdom 948 1017 103.1 1139 1244 124.2 1267 1311 128.6 1146 1126 1146 1156 1154

Belgium-Luxembourg 938 101 3 118.4 1393 1388 135.0 1414 1406 145.2 1414 1462 1433 138.0 138.4

LaReunion 886 968 110.6 1247 1219 119.1 1245 1232 128.6 1305 132.5 1322 128.5 1289

HongKong 118.6 1291 114.1 114.4 1173 129.7 122.4 1341 140.2 1565 1540 1515 1577 1629

Singapore 145.4 1486 1271 125.6 127.6 135.7 129.7 138.6 1428 151.3 1488 1469 152.6 157.0

Mauritian Maior Partner Export SharesUnited States 12.4 15.0 16.4 14.9 133 138 12.7 115 99 14.6 15.2 143 15.0 140

France 17.3 20.9 23.7 25.9 22.5 199 23.4 201 21 5 21.4 21.9 25.6 19.1 198

Germany 5.2 6.4 75 8.0 9.5 9.3 8.7 112 104 8.0 7.2 71 9.0 8.3

Italy 2.6 3.2 23 2.6 3.8 38 4.5 5.0 48 4.0 5.8 37 3.1 4.0

Netherlands 1.4 1.1 17 1.5 1.2 23 1.7 1.8 26 2.7 3.0 16 3 5 2.3

United Kingdom 504 43.4 366 35.0 35.7 35.8 36.0 36.1 349 31.8 30.8 285 341 32.7

Belgium-Luxembourg 1.4 1.7 20 1.7 2.3 20 2.2 1.7 1 7 1.9 2.2 22 1 7 1.5

La Reunion 1.7 1.7 24 2.4 2.1 19 1.8 1.7 20 20 2.3 2.3 17 1.9

Hong Kong 0.5 0.9 07 03 04 04 0.5 0.4 04 05 0.5 05 04 0.5

Singapore 00 00 00 01 0.1 04 04 0.9 09 12 0.9 14 11 14

Source: International Monetary Fund; World Bank Staff Estimates

Table X Summary of Key Macroeconomic Indicators. 1984-97 APPENDIX ERatios In Percent

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Provisional Estimates .-.------ -Projections -------------------

GDP Growth Rate (FC) 4.8 7.4 9.2 8.4 6.1 4.7 7.2 4.3 6.7 5.0 5.1 5.9 5.8 6.0GNP Growth Rate 2.3 7.7 9.8 11.7 6.9 5.9 7.2 5.3 6.4 6.8 4.2 5.6 5.9 6.0GNP/Capita Growth Rate 18.6 6.8 8.8 10.5 5.6 4.9 4.3 4.4 5.5 3.9 4.3 4.9 5.0 5.0Consumption/Capita Growth 21.0 4.1 5.0 14.2 6.7 5.7 2.4 2.6 4.1 4.5 4.6 4.2 5.2 4.4

Total DOD in US$ mill. 547.0 629.0 671.0 813.0 860.0 835.0 969.0 1034.0 1048.0 1048.0 1077.2 1122.2 1171.2 1109.0DOD/XGS 103.5 104.9 72.9 64.1 58.1 54.9 52.0 53.2 50.1 48.6 45.3 43.8 42.3 37.0DOD/GDP 52.6 58.4 46.0 44.4 41.5 39.6 37.9 37.8 34.0 31.9 31.6 31.1 30.6 27.4Debt Service in US$ mill. 95.9 90.3 98.8 104.4 174.7 123.9 137.7 162.9 183.1 171.4 148.5 152.2 168.4 188.6Debt Service/XGS 1/ 18.1 15.1 10.7 8.2 11.8 8.2 7.4 8.4 8.8 7.9 6.2 5.9 6.1 6.3Debt Service/GDP 9.2 8.4 6.8 5.7 8.4 5.9 5.4 5.9 5.9 5.2 4.4 4.2 4.4 4.7Interest/GDP 4.6 4.4 4.1 3.0 3.4 3.4 3.1 2.8 2.6 2.5 1.8 1.7 1.7 1.8

Gross Investment/GDP 22.0 23.5 21.6 25.3 30.6 30.5 30.4 28.0 28.6 30.5 31.7 30.0 29.2 29.7Domestic Savings/GDP 18.6 21.6 28.3 27.4 25.5 22.9 23.0 24.1 25.2 24.2 23.3 24.3 24.7 25.8National Savings/GNP 16.9 20.2 27.7 28.0 27.4 25.4 25.5 27.2 28.3 26.5 24.4 25.2 25.5 26.6Marg National Saving Rate 6.7 40.0 77.8 24.7 -11.5 75.9 29.3 29.3 29.3 29.3 29.3 29.3 29.3 29.3Public Investment/GDP 3.3 3.5 3.8 4.4 4.6 4.5 4.0 4.4 4.8 4.8 4.9 4.9 4.7 4.6Public Savings/GDP -2.5 -1.0 1.6 3.2 2.8 2.3 2.6 2.5 2.5 2.6 3.0 1.8 2.3 3.5Private Investment/GDP 18.7 20.0 17.8 20.9 26.0 26.0 26.4 23.6 23.8 25.8 26.8 25.1 24.5 25.2Private Savings/GDP 21.1 22.6 26.8 24.2 22.8 20.6 20.4 21.7 22.7 21.7 20.3 22.5 22.4 22.3Ratio Public/Private Inv 17.4 17.3 21.5 20.9 17.9 17.1 15.3 18.6 20.1 18.6 18.4 19.5 19.4 18.2

Government Revenue/GDP 23.4 22.8 23.2 24.4 25.1 25.1 24.9 24.7 24.0 23.7 23.3 22.4 22.3 22.3Government Current Exp/GDP 25.9 23.9 21.8 21.3 22.3 22.8 22.3 22.3 21.6 21.2 20.3 18.5 17.5 17.1GovernmentTotalExp/GDP 30.3 28.4 26.8 26.5 27.8 28.1 27.1 27.1 26.5 26.0 25.3 23.6 22.6 22.2CurrAccountBalance/GDP -2.5 -1.1 1.4 3.1 2.8 2.3 2.6 2.5 2.5 2.6 2.9 4.0 4.8 5.2Overall Deficit/GDP -6.9 -5.6 -3.6 -2.1 -2.7 -3.0 -2.2 -2.3 -2.5 -2.3 -2.0 -1. 1 -0.3 0.1

Export Growth Rate (Goods) 5.3 13.8 28.7 15.7 10.6 1.0 6.2 2.0 3.4 5.4 3.2 1.7 3.3 5.1Exports/GDP (G+NFS) 48.7 53.5 60.7 66.3 66.7 66.5 67.4 65.0 62.1 61.0 60.9 60.7 61.2 62.2Imports Growth Rate (Goods) 9.0 7.5 29.3 33.6 19.9 1.5 11.2 -1.6 2.9 8.5 13.2 -2.5 1.2 3.6Imports/GDP (G+NFS) 52.1 55.4 54.0 64.2 71.8 74.0 74.8 68.9 65.5 67.4 69.3 66.4 65.8 66.1Current Account, incl int (US$) -60.9 -44.0 73.1 37.9 -78.4 -111.7 -131.5 -21.8 -6.9 -137.7 -247.1 -172.1 -144.2 -131.9Current Account/GDP, incl int -5.9 -4.1 5.0 2.1 -3.8 -5.3 -5.1 -0.8 -0.2 -4.2 -7.4 -4.9 -3.8 -3.3

Source: Government of Mauritius-Central Statistical Office, Ministry of Finance, and World Bank Staff Estimates

IMAGI NG-CATALOGUEP~~~~~~~~~~*i

Report No: 131- ATypo: EP

mauritius country economic memorandum: sharpening the ...€¦ · countryeconomicmemorandum:...

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