July 2, 2021

. . An update of the economy of based upon the latest data for various economic indicators has been presented. Covered here is the broad macro-economic situation, external sector scenario, fiscal position, banking indicators and monetary policy.

GDP growth – Q1 2021 Chart 1: GDP growth (y-o-y %) The outbreak of the Covid-19 pandemic and the 10.00 4.2 3.6 3.2 4.0 3.3 3.5 2.9 2.4 5.00 resultant disruptions deaccelerated the pace of 0.00 -8.7 economic growth in Mauritius. In 2020, the annual -5.00 -11.3 GDP growth rate stood at -14.9%, significantly lower -10.00 -2.9 % -15.00 than the 3% growth recorded in the previous year. In -12.6 -20.00 the first quarter of 2021, the Mauritius economy -25.00 -33.0 continued to contract for the fifth successive quarter -30.00 -35.00 recording a GDP de-growth of 8.7% compared with - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* 2.9% in Q1 2020. However, there has been a 2018 2019 2020 2021 sequential improvement from the double-digit de- growth of 11.3% in the previous quarter. at market prices

Note: * First estimate Source: Bank of Mauritius

The sectoral and expenditure-wise growth rates at market prices have been captured in Table 1 and Table 2, respectively. Table 1: Sectoral Growth Rates (%) – Year-on-Year Table 2: Expenditure components of GDP (% growth – year –on –year) Q1 Q4 Q1* Q1 Q4 Q1* 2020 2020 2021 2020 2020 2021 Agriculture, forestry and fishing -4.3 -3.1 11.3 Final consumption expenditure -5.5 -8.3 -4.2 Manufacturing -0.6 -11.3 -5.6 Households -6.3 -9.6 -4.2 Construction -6.5 -2.2 0.6 General Government -1.9 -0.8 -4 Wholesale & retail trade -3.7 -7.7 1.9 Gross fixed capital formation -6.3 -9.1 -5.5 Transportation and storage -14.3 -19.8 -19.1 Exports of goods and services -5.6 -42.4 -10.6 Accommodation and food service activities -14.8 -74.7 -82.0 Imports of goods and services -15.0 -28.0 11.1 Information and communication 4.9 5.8 5.8 Note: * First Estimate Financial and insurance activities 4.2 0.9 2.3 Source: Statistics Mauritius Real estate activities 0.4 1.4 2.0 Professional, scientific and technical activities - 0.6 - 4.1 0.7 Public administration and defence 4.7 -2.1 4.3 Gross Value Added (GVA) at basic prices -2.3 -11.1 -8.4 Taxes on products (net of subsidies) -6.6 -12.6 -10.9 Gross Domestic Product at market prices -2.9 -11.3 -8.7

Note: * First estimate Source: Statistics Mauritius

• In Q1 2021, the gross value addition (GVA) witnessed a contraction of 8.4% compared with 11.1% de-growth in Q4 2020 and 2.3% de-growth in Q1 2020. This sequential improvement in gross value addition during the first quarter of 2021 can be ascribed to positive y-o-y growth recorded across all sectors except manufacturing, transport & storage and accommodation & food service activities. • Accommodation and food service activities sector not only witnessed the sharpest contraction but the de-growth during the current quarter has widened to 82%, higher than -74.7% in the previous quarter and -14.8% in the corresponding quarter last year. • In Q1 2021, the contraction in manufacturing sector output narrowed to -5.6% from -11.3% in Q4 2020. • Transport and storage segment grew at -19.1% in the first quarter of 2021 compared with -19.8% in the last quarter of 2020 and - 14.3% in the first quarter of 2020. • In Q1 2021, the agricultural sector output has registered a double-digit growth of 11.3% vis-à-vis a negative growth of 3.1% in Q4 2020 and -4.3% in Q1 2020.

• In Q1 2021, output growth has been seen across financial and insurance activities (2.3% y-o-y growth), information & communication (5.8%) and real estate activities (2%). • Though agriculture and manufacturing sectors have been witnessing a rebound in economic activities, the significant de- acceleration in transport & storage, accommodation & food services have been weighing down the overall economic growth. • In Q1 2021, the final consumption expenditure contracted by 4.2% on a year-on-year basis. o Household consumption expenditure fell by 4.2% in Q1 2021, lower than 9.6% decline in Q4 2020. o The fall in Government expenditure widened to 4% in the current quarter from -0.8% in the previous quarter. • Gross fixed capital formation indicative of the overall investments contracted by 5.5%, lower than -9.1% in the previous quarter and -6.3% in the corresponding quarter last year. • Imports registered a notable improvement in the current quarter as they grew by 11.1% vis-à-vis 28% contraction in the previous quarter.

Industrial production In Q1 2021, the industrial output contracted by 5.6%, compared with -11.4% in the previous quarter and -1.9% in the corresponding quarter last year. The negative growth in industrial output is because of a broad-based decline across all sectors. However, the de- growth across sectors has witnessed a sequential improvement in Q1 2021 over the previous quarter.

Chart 2: Industrial production (y-o-y growth %) 2.6 2.0 0.6 0.1 5.0 -1.9 0.0 -4.7 -5.6 Mining and quarrying -5.0 -11.4 -0.6 -10.0 -14.6 -15.0 -0.6 Manufacturing % -20.0 -5.5 Q1 2020 -25.0 Q1 2021 -30.0 Electricity, gas, steam and -4.0 -35.0 -39.6 air conditioning supply -9.2 -40.0 Water supply; sewrage, -45.0 -4.7 waste management & Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 -0.2 remediation 2019 2019 2019 2019 2020 2020 2020 2020 2021

Source: Statistics Mauritius

Inflation In May 2021, the headline has inched up to a five-month high of 2.4% compared with 0.2% in April 2021. However, it was lower than the 2.8% headline inflation registered in May 2020. Core inflation excludes food, beverages, tobacco, mortgage interest, energy and administered prices. Core inflation during the month has remained unchanged at 4.1% as in the previous month, but higher than 3.2% in the corresponding month last year.

The Producer Price Index for the manufacturing sector (PPI-M) inched up to 120 in May 2021, 6.6% higher than 112.6 in May 2020. The prices of fabricated metal products and furniture increased while prices of printing and reproduction of recorded media declined during the month.

The Producer Price Index for agricultural sector (PPI-A) inched up to 117.5 in March 2021, 1.4% higher than February 2021 (115.9). However, it was 8.6% lower compared with March 2020 (128.6)

• Prices of sugar cane which is a major constituent in the overall index and crop-products component (contributing to 35.7% and 58.3% to their respective weights) increased to 82.1 in March 2021, 14% higher than the corresponding month last year (71.9 in March 2020) • In March 2021, the price index for other crop products moderated by 23.8% to 190.8 compared with 250.5 in the corresponding month last year. • The prices of fresh vegetables were higher by 11.6% compared with the previous month. However, they were lower 34% lower than March 2020. • The price index for Animals & Animal products (38.8% weight) stood at 101.9 in March 2021, 1.1% higher than 100.8 in March 2020.

In the first quarter of 2021 the PPI-A was at 116.8, 6% higher compared with the previous quarter (110.2 in Q4 2020). However, it was 2.6% lower than the corresponding quarter of the previous year (119.9 in Q1 2020).

Chart 3: CPI-based Inflation Chart 4: Producer Price Inflation 5.0 4.1 4.1 40.0 7.0 30.0 6.0 4.0 6.5 6.6 20.0 5.0 3.0 2.4 4.0 % 10.0 % % -0.6 3.0 2.0 0.0 -8.6 2.0 -10.0 1.0 0.2 1.0 -20.0 0.0

0.0

Jul-20

Jan-21

Jun-20

Oct-20

Apr-20 Apr-21

Sep-20 Feb-21

Dec-20

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Mar-20 Mar-21

May-21 May-20

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May-20 May-21 Headline Core PPI - Agriculture PPI-Mfg

Source: Statistics Mauritius Source: Statistics Mauritius

Fiscal position Table 3 gives a snapshot of the central government finances FY20 Table 3: Government accounts (in MUR Mn) (July’19-June’20), H1 FY20 & H1 FY21. FY20 % H1 H1 (RE) FY20 (A) change FY20 FY21 • As per FY20 actuals, the revenue of the government is 25% Revenue 97,240 1,21,938 25.4 74,051 1,09,741 higher than the revised estimate (RE) in the budget. Taxes Taxes 89,025 91,852 3.2 49,575 44,350 accounted for the nearly 75% of the total revenues and were Expense 1,41,519 1,50,169 6.1 60,737 84,012 3.2% higher than RE. Interest 13,580 13,366 -1.6 6,759 6,333 • Expenditure by the government increased by 6.1% than the Subsidies 15,566 10,097 -35.1 708 3,623 RE in FY20. Social benefits (28% share) are the focus area of Grants 22,696 36,505 60.8 11,737 26,665 Social benefits 42,974 41,903 -2.5 19,018 24,208 expenditure by the . Budget Balance -63,579 -36,395 -42.8 10,395 23,094 • As a result of faster growth in revenues the budget deficit Source: Statistics Mauritius, Bank of Mauritius declined to MUR 36.4 billion in 2020. As per FY20 actuals, the budget deficit of the government is 43% lower than the revised estimate (RE) in the budget.

For FY21, the government has budgeted a balanced budget, the revenue of the government is estimated to grow by 9% while the expenditure is estimated to decline by 11%.

In the first six months of FY21 the revenues of the government were 48% higher than the corresponding period of FY20 mainly on account of higher grants. However, the tax revenue in H1 FY21 were 11% lower compared with H1 FY20. Expenditure of the government increased by 38% to MUR 84 billion in H1 FY21 compared with MUR 60.7 billion in the corresponding period last year. Barring interest payments all other heads of expenditure were higher in H1 FY21 than in H1 FY20. As a result of faster growth in revenues the budget surplus was at MUR 23 billion in the first half of the fiscal.

The debt position of the government is on a rise. As reported by Bank of Mauritius the total outstanding central government domestic debt in March 2021 increased to MUR 268 billion (63% of the GDP) from MUR 259 billion in December 2020. In March 2021, the external debt of the central government increased to 19.6% of GDP (MUR 83.5 billion) from 16% in December 2020 (MUR 68.7 billion). Public sector domestic debt during the quarter increased to 66.2% from 63% of GDP in December 2020. Public sector external debt amounted to MUR 107 billion (25% of GDP) in March 2021.

Banking In May 2021, Broad Money Liabilities (BML) registered a year-on-year growth of 19.6%. All components of BML grew on a year-on-year basis during the month except debt securities. Claims on other sectors (excluding financial derivatives) increased by 15% compared with May 2020 and 0.9% compared with April 2021.

Table 4: Components and Sources of BML MUR mn Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Broad Money Liabilities 6,94,773 7,03,593 708,184 710,613 710,710 7,63,284 7,65,919 Currency with Public 36,908 39,611 38,498 38,230 38,931 39,705 39,961 Deposit Liabilities 6,36,114 6,43,951 649,072 652,503 655,895 7,10,022 7,13,129 Debt securities 21,751 20,032 20,614 19,880 15,884 13,558 12,829 Claims on other sectors 5,31,744 5,33,239 5,45,224 5,35,927 529,364 5,73,215 5,78,157 (excl. financial derivatives) Source: Bank of Mauritius

Monetary policy The monetary policy meeting scheduled for June 2, 2021 has been postponed. The last meeting of the monetary policy committee was held on February 4, 2021. In the meeting, the Monetary Policy Committee (MPC) of the Bank of Mauritius unanimously decided to keep the Key Repo Rate (KRR) unchanged at 1.85% per annum. As per projections of the Bank staff, real GDP is expected to grow at 7.9% in 2021 and supply side pressures would influence inflation. The bank staff is hence projecting headline inflation of 3% for 2021 in the absence of external shocks. Hence, the MPC has decided to maintain the KRR at 1.85% per annum.

Table 5: Key interest rates (%) % Key Repo Rate Weighted average lending rate Saving rate Term Deposit Rate Jul-20 1.85 4.64 0.15-0.60 0.01-3.75 Aug-20 1.85 4.71 0.15-0.60 0.00-3.40 Sept-20 1.85 4.73 0.15-0.60 0.00-2.65 Oct-20 1.85 4.70 0.15-0.60 0.00-2.65 Nov-20 1.85 4.70 0.15-0.60 0.01-2.50 Dec-20 1.85 4.70 0.15-0.60 0.00-2.60 Jan-21 1.85 4.70 0.15-0.60 0.00-2.50 Feb-21 1.85 4.67 0.15-0.60 0.00-3.25 Mar-21 1.85 4.70 0.15-0.60 0.00-3.50 Apr-21 1.85 4.60 0.15-0.60 0.00-3.00 Source: Bank of Mauritius

External sector 1. Exports, imports and trade deficit • In April 2021, trade deficit narrowed to MUR 9 billion, lower than MUR 11 billion in March 2021 and MUR 9.2 billion in April 2020. • Total imports in April 2021, plunged by 13.3% over the previous month, however they were up by 28% when compared to the corresponding month last year. Except chemicals & related products, animals & vegetable oils, fats & waxes, imports of all other major commodities witnessed a decline over the previous month. • Total exports during the month fell by 0.8% (m-o-m), but they were notably higher by 141% compared with April 2020 when global trade was brought to a standstill owing to the pandemic led disruptions. Exports of all major items grew during the month except exports of machinery & transport equipment, food & live animals and miscellaneous manufactured articles. • Major export destinations of Mauritius were (15.1%), (9.1%), (8.9%), (8.6%), (8.4%) and (5.8%) and major import partners were (14.4%), South Africa (10.4%), (10.3%), U.A.E (9.7%), France (6.8%) and (4.5%)

Chart 5: Export and import growth (y-o-y %) Chart 6: Trade deficit 250.0 193.8

200.0

Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 150.0 - 100.0 % (2,000) 50.0 12.9 0.0 (4,000) 24.0 27.9 -50.0 (6,000) -100.0

MURmn (8,000)

6212

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6664

-

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8214

8366

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Export growth Import growth -

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9,587

10,613 11,098

(12,000) 10,318

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- - - Note: Exports includes domestic exports and re-exports Source: Statistics Mauritius Source: Statistics Mauritius

2. Current account balance In the first quarter of 2021, the current account deficit stood at MUR 17.2 billion, higher than MUR 7.9 billion in the corresponding quarter of 2020. The deficit in the goods account was at MUR 23 billion in Q1 2021 compared with MUR 22.5 billion in Q1 2020. The services account recorded a deficit of MUR 3.3 billion in the current quarter vis-à-vis surplus of MUR 6.6 billion in the corresponding quarter last year. This can be ascribed to a higher deficit in transport, travel, insurance & pension services and personal, cultural, and recreational services. The primary income account witnessed a surplus of MUR 13.1 billion while the secondary income account witnessed a deficit of MUR 4 billion.

3. Exchange rate Chart 7: Average monthly exchange rate (MUR/$) In May 2021, the depreciated to a record

low of MUR 40.92 per US Dollar. It weakened by 0.1%

Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 compared with MUR 40.88 per US Dollar in the previous May-20 month and by 1.1% compared with MUR 40.46 per US Dollar 39.200 in the corresponding month last year. 39.400 39.600 For the 12-months period ended May 2021 the average 39.800 MUR/USD exchange rate was MUR 40.38 per US Dollar as 40.000 against MUR 37.55 per US Dollar for the corresponding 40.200 40.464 period ended May 2020. $ MUR/US 40.400 40.600 40.800 41.000 40.92 Source: Statistics Mauritius 4. Foreign exchange reserves Table 6: International forex reserves and import cover In May 2021, the gross official international reserves Month Gross official Import cover inched up to USD 7.6 billion from USD 7.5 billion in April international reserves (USD Mn) (in months) 2021. The reserves witnessed a month-on-month growth May-20 6,880.8 16.2 of 1.7% and a year-on year growth of 10.3% Jun-20 7,194.1 16.9 Jul-20 7,655.9 17.9 During the month the import cover rose to a record high Aug-20 7,268.6 16.9 of 18.1 months. The import cover was 16.2 months in the Sept-20 7,206.0 16.9 corresponding month last year. Oct-20 6,973.4 16.4 Nov-20 6,967.5 16.3 Dec-20 7291.9 16.8 Jan-21 7763.3 18.0 Feb-21 7347.2 17.2 Mar-21 7329.0 17.4

Apr-21 7461.3 17.7 May-21 7587.5 18.1 Source: Bank of Mauritius 5. Tourism Chart 8: Tourist arrivals and earnings In May 2021, the number of tourist arrivals in Mauritius 1,400 900 have witnessed an uptick to 115, higher than 58 tourist 1,200 800 arrivals in the April 2021 and 20 arrivals in May 2020. 700 1,000 However, the number of tourist arrivals continues to be 600 800 significantly lower than the pre-pandemic levels. 500

lakhs 600 400 Mn Rs. 400 300 The gross tourism earnings for April 2021 stood at MUR 200

200 10

254 254 281 281

748 383 414 195 215 222 243 176 103 25 25 million, notably lower than MUR 103 million in the 808 100 previous month. - 0

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Tourist earnings (Rs. Mn) Tourist arrival

Source: Statistics Mauritius

6. Gross Direct Investment flows The Gross Direct Investment inflows in Mauritius stood at Chart 9: Gross Direct Investment Flows MUR 9.08 billion for the period January to September 2020. 25,000 The inflows were mainly concentrated in the real estate activities which accounted for 73% of the total inflows. 20,000

22,342

Gross Direct Investment Flows in Mauritius for the first three 15,000 21,337

20,373

20,045 18,497

quarters retreated to MUR 9.08 billion in 2020 compared with 18,161 10,000

MUR 14.89 billion in the corresponding quarter of the MURMn 13,766 previous year. Gross Direct Investment Flows retreated in all 13,726 5,000

major segments except manufacturing, storage & transport, 9,080 education, human health and social welfare activities. -

(Jan-…

2012 2014 2015 2016 2017 2018 2019 2020 Nearly 69% of the total investment flows originated from 2013 European countries. Source: Bank of Mauritius

Contact: Madan Sabnavis Author: Mradul Mishra Chief Economist Akanksha Bhende Media Relations [email protected] Associate Economist [email protected] +91-22-6837 4433 [email protected] +91-22-6754 3573 + 91-22-6837 4400

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