Country Report Mauritius

Outlook for 2008-09

• Despite tension between the reformist and traditionalist wings of the Labour Party, the Alliance sociale coalition government will remain in power over the forecast period and maintain the liberalising thrust of economic policy.
• The Economist Intelligence Unit forecasts real GDP growth of 5.8% in 2008 and 6% in 2009, driven by the continuing recovery of textile manufacturing and further growth in the services and seafood sectors.
• We expect inflation to begin to decline over the next few months. However, average inflation is forecast to rise to 8.9% in 2008, before declining to 5.8% in 2009 as world energy and food price inflation falls.
• The Mauritius rupee is likely to hold on to much of its appreciation until late 2008, when the US dollar should start to rise on world markets. We forecast an average exchange rate of MRs27.1:US$1 in 2008 and MRs28.2:US$1 in 2009.
• The current-account deficit is forecast to rise to 6.7% of GDP in 2008, owing to a worsening trade deficit, before falling to 5.6% of GDP in 2009 as continuing growth in tourism leads to a wider surplus on the services account.

Monthly review

• The leader of the opposition, Paul Berenger, is building up the strength of his own party, Mouvement militant mauricien (MMM), after reports that a second party in the ruling coalition is at odds with the government.
• The Mouvement socialiste militant (MSM) has suffered a further setback with the resignation from the party of a senior member of the National Assembly.
• Plans for electoral reform have sharpened the debate about inter-communal relations and appear unlikely to make significant progress.
• The Bank of Mauritius has cut interest rates for the third time this year, despite the high rate of inflation. The governor of the bank has said that there will be no further cuts until inflation shows a sustained decline.
• The June budget will be the first to follow programme-based budgeting and incorporate a three-year expenditure framework.
• The EU and the French development agency have announced new aid and loans to support the government’s economic reforms and restructuring.
• Under the impact of higher world food and energy prices, prices rose by 1% in April and year-on-year inflation remained high at 9.2%.
• Tourist arrivals increased by 7.2% year on year in the first quarter of 2008, and earnings from tourism increased by 10.7%. The government has kept its growth target for 2008 at 7.5%—projecting 975,000 visitors.