The World Bank acting Country Director for Mauritius, Seychelles, Comoros and Madagascar gives his views, to Stéphane Saminaden, on issues related to the Mauritian economy. He also identifies the main economic challenges ahead for Mauritius.

Should we fear the alarming scenario described by the ministry of Finance in its pre-budget advance paper?

The challenge is to maintain the balance between economic growth and the social agenda, especially during this Euro zone crisis with little visibility on the timing, speed and quantum of its recovery. The Government of Mauritius announced a good economic restructuring (the ERCP) package to support long term competiveness of firms willing to re-engineer their business models. We believe that the 2011 budget should maintain and even deepen measures that would put Mauritius on a higher growth path. However, Mauritius still faces challenges that inhibit growth and integration of the private sector in the value chain and the rebalancing of economic activities towards the BRIC countries. The challenges ahead remain road transport congestion, the trade related regulatory framework and the education system. Having said this, it is important to mention that the labour policies in Mauritius have been a key vehicle to maintain the social pact among the Mauritian society and going forward, it is crucial to maintain the social pact as layoffs might increase in the future as firms changes their business models.

How do you rate Mauritius in terms of budget deficit and the public debt issue?

The Government of Mauritius has been successful in bringing down budget deficits and public  sector debts from 5.4 percent and almost 70 percent in 2007 to 4.5 and 60 percents respectively, in 2010 and the results could have been better had the country not been hit by the crises. However, risks remain ahead. Deterioration of the external accounts is possible if global demand for Mauritian exports remains sluggish, leading to lower fiscal revenues and stretching further the budget. Pressure on the fiscal would also arise due to unexpected costs associated with the Government’s ambitious five-year work plan. Fiscal consolidation and discipline are key in maintaining the budget deficit at the current level. Public debt is bound to increase in the short term due to borrowing requirements for the implementation of the public investment program. However, returns to these investments in the medium and longer term would make the debts more sustainable and this should be linked to a good debt management process.

The debate presently is how can Mauritius cope with the downside of the euro zone which is our main export market?

The economy remains vulnerable to the current external situation especially due to lack of visibility on the timing of the recovery. However, we believe that the stimulus programme announced by the Government, though it is too early to evaluate its impact, will help partially to weather the negative effects of the crisis and prepare the economy for longer-term competitiveness. The situation might become alarming if reforms are not implemented and the external environment deteriorates.  The reduction in the repo rate announced on September 27 provides more breathing space to the exporters.

The forecasts for GDP growth for the coming years have been revised downward. Do you agree with this pessimism?

We see the economy with a positive outlook, although risks exist, especially in the short term. The downward revision of GDP growth is explained by the external economic environment, but we anticipate that the country would grow by 4.0 percent in 2010. Assuming weak recovery in the Euro zone in 2011, we project a GDP growth of 3.7 percent for that year and back in the range of 4 to 5 percent in 2013 onwards. However, implementation of reforms to improve efficiency and reduce regulatory costs of doing business would eventually enhance competitiveness leading to much higher growth rates for the Mauritian economy.

What is the importance for a country like Mauritius to have a collection of data for non-tariff measures?

Mauritius has been very successful in improving its trade-policy environment, particularly through reduction in the tariff bands and completely liberalizing more than 85 percent of tariff lines. However, room for improving the environment and making Mauritius more attractive for business still exists. The focus of liberalization should now be shifted from tariffs to non-tariffs measures that impede trade just as much as tariffs do.  Today, Mauritius is faced with inappropriate trade regulations which compromise competitiveness. These include ineffective approaches in designing regulations and excessive red tape. Removing these barriers is crucial in reducing the cost of doing business in the country. The non-tariff measures database, first and foremost, is an invaluable tool to the business community for whom transparency in regulations is a basic need. The dataset covers and codes practically all non-tariff measures that exist in Mauritius. It provides references to the legal sources and the issuing agencies pertaining to these non-tariff measures. The precision and exhaustiveness of this unique database makes it an interesting tool for researchers and the policy community. The dataset will also facilitate regional dialogue on the harmonization and streamlining of NTMs. Beyond transparency, the World Bank hopes that renewed attention to the possible impact of non-tariff measures on the cost of doing business in Mauritius will contribute to put regulatory reform at the center of the national competitiveness agenda.

From the information gathered through this exercise of data collection how would you rate Mauritius on its trade policies regarding non tariff measures?

Existing studies show that compared to top economic performers like Hong Kong and Singapore, Mauritius is lagging behind on time necessary for dealing with exports and imports transactions. For example, while Singapore takes 6 days to conduct trade transactions, Mauritius uses 12 days.  Regarding imports in particular, lack of coordination among multiple agencies issuing permits/ clearances reflect regulatory deficiencies in the business environment. As of January 2009, approximately 30 percent of import declarations had two requirements involving different line ministries and agencies. In approximately 5 percent of the cases, three or four import requirements were needed. Additionally, a large number of transactions (above 50% of imports by sea) go through the yellow channel which demands a more thorough check on compliance, as opposed to ex post, random and targeted checks. However, a detailed analysis is needed to shed light on what are the minimum measures required to regulate vital areas like health and the environment and what measures act as barriers to trade and competitiveness.

Interviewed by Stphane Saminaden