"An Overview of the Current State of Mauritius' Financial Services Industry in 2023"

 

1 INTRODUCTION

The 1.3 million-person island nation of Mauritius has one of the continent's most prosperous and competitive economies.  In 2021, the nation's Gross Domestic Product (GDP) was $11.5 billion, with a per-person GDP of $9,106.  Based on data from 2019, the World Bank classed Mauritius as a high-income country in July 2020; however, as a result of COVID-19's effects, Mauritius' position changed to upper-middle income country in July 2021.  The country's GDP decreased by 15% during the pandemic, from $14 billion in 2019 to $11 billion in 2020, a drop of $11 billion.  The GDP improved slightly to $11.1 billion in 2021, which is 20% below the pre-pandemic level, thanks to a minor recovery in tourism and an island-wide vaccination effort.  The industries that were most severely impacted by the pandemic were tourism, manufacturing, and retail.  Real GDP growth was estimated to be 3.7 percent in 2021, and the World Bank predicted that in a context of low growth, high inflation, and heightened geopolitical tensions, the economy would recover with GDP growth of 5.8 percent in 2022 and 6 percent in 2023 before slowing to 3.9 percent in 2024. 

Mauritius is one of the freest and most open nations in Africa, according to numerous studies and measurements.  The Heritage Foundation's 2022 Index of Economic Freedom places Mauritius 30th internationally and first among 47 countries in the Sub-Saharan Africa area.  In the Global Innovation Index Report 2021, Mauritius also placed top in Sub-Saharan Africa for the second year in a row and 52nd overall among 132 nations.

What is a Financial System?

Financial institutions, financial markets, and financial instruments comprise a financial system. Three parts make up the Mauritian financial system's structure.

Financial System

Financial institutions, Financial Markets and Financial instruments consists of :

-Banks -Money market -Deposits

-Non-bank -Foreign exchange market -Equities

-Stock market -Debentures

-Debentures & rights market -Bills

-Bond market -Bonds

2.Interest Rate

Data on interest rate structure are disseminated on a monthly basis and are used to analyse the trend and structure of interest rates on rupee deposits and loans and overdraft facilities offered by banks.In Mauritius, interest rates decisions are taken by the Bank of Mauritius. The BoM’s official interest rate is the repo rate.The Central Bank of Mauritius unanimously decided to raise its key repo rate by 50 basis points to 4.5% in December of 2022. It marks the fifth rate hike in 2022, bringing borrowing costs to the highest since October of 2015, with the aim to close yield differentials with other countries, contain FX volatility and inflation pressures, whilst not undermining growth. Policymakers argued that the normalization process should be pursued since the macroeconomic costs associated with inflation expectations, if not properly anchored, are high. Further, the MPC deliberated that the positive growth performance so far continues to provide leeway for a normalization to anchor inflation expectations and bring inflation in 2023 down to below 6% from 10.6% in 2022. The Bank kept its growth projections at at around 5% for 2023. The recovery process is well entrenched and broad-based, underpinned by greater dynamism across major sectors of the economy, including tourism.

3.Monetary Policy

The Bank of Mauritius is changing the way it manages the country's money supply. The old policy, which has been in place since 2006, is being replaced by a new policy that aims to make monetary policy more effective. The new policy is called "flexible inflation targeting," which means the bank will try to keep inflation within a range of 2-5%. The goal is to achieve an inflation rate of 3.5% over the medium term.

To achieve this goal, the bank will use a new policy rate called the "Key Rate." This replaces the old "Key Repo Rate." Both rates are initially set at 4.5%. The bank will also review its monetary policy instruments to better manage liquidity conditions.

Overall, the new monetary policy framework aims to improve the effectiveness of monetary policy and make it more flexible. By using a new policy rate and adjusting monetary policy instruments, the Bank of Mauritius hopes to better manage inflation and stabilize the economy.

4.Public Debt

The trajectory of Mauritius' governmental debt is concerning. The Public Debt Management Act was passed by Parliament after the public debt dropped significantly from 63.7% of GDP in 2008 to 48.6% of GDP in 2013, setting a statutory debt ceiling of 60% of GDP. It has been difficult to remain below that threshold, though. 88% of the nation's total public debt is domestic in nature, and the banking industry holds the majority of it in the form of government bonds. 12.0% of public external debt is only owed to multilateral creditors on favorable terms with protracted maturities. Due to the significant concentration of domestic governmental debt, there is some protection from currency risk. 

Due to increased spending, the pandemic may short- to medium-term affect Mauritius' public debt profile. In contrast to 64.6% in 2020, 76.1% is predicted for public debt in 2021. The public sector debt target set by law of 60% of GDP would necessitate significant revenue growth and fiscal consolidation. The national debt is still manageable and the debt servicing is only a minor portion of the budget (9% in 2020–2021). The government may not be able to restructure its debt in the near future. The projected GDP rebound over the next two years will enable debt to be contained at levels conducive to sound economic growth.

5.Tourist Arrival

After hitting its lowest point in 2020, the tourism industry has finally begun to show signs of recovery. In November, there were 65,922 visitors, the highest number since the epidemic began. The robust recovery is greatly welcomed because the tourism industry contributes significantly to economic activity. Having said that, there are significant negative risks for a further rebound in December and early 2022 due to the introduction of the new Omicron model. (Source: December 2021 edition of the Mauritius Quarterly Update.)

6.Compensation salarial

GIS – 30 November 2022: A monthly salary compensation of Rs 1,000 would be paid to workers, across the board, as from January 2023. This was announced by the Minister of Finance, Economic Planning and Development, Dr Renganaden Padayachy, this afternoon, after the Tripartite Meeting held at Sir Harilal Vaghjee Memorial Hall in Port Louis.

Conclusion

In 2023, policy will be centered on minimizing the negative economic and social effects of a recession in the world economy. Growth is anticipated to slow in 2023 as Europe (a crucial market) undergoes a slowdown because of the economy's reliance on tourism. Domestic demand will be hampered by monetary tightening. In 2024, when tourism is anticipated to fully rebound to pre-pandemic levels, real GDP growth will accelerate before dropping to its long-term average rate between 2025 and 2027.(As per the `` Africa feels the strain from elevated debt`` Article)