August 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%, compared with 3% -10.00 -2.9 % -15.00 in the previous year. In the first quarter of 2021, the -12.6 -20.00 Mauritius economy continued to contract for the fifth -25.00 -33.0 successive quarter recording a GDP de-growth of -30.00 -35.00 8.7% compared with -2.9% in Q1 2020. However, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* there has been a sequential improvement from the 2018 2019 2020 2021 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 Headline witnessed an icnrease to 5.9% in June 2021, highest in the last three years. Inflation reading for the month was higher than the 2.4% inflation in May 2021 and 1.7% in June 2020. Core inflation excludes food, beverages, tobacco, mortgage interest, energy and administered prices. Core inflation strengthened further to 4.5% during the month over 4.1% in the previous month and 2.9% in the corresponding month last year. Thus, both headline as well as core inflation have witnessed an uptick in the current month.

The Producer Price Index for the manufacturing sector (PPI-M) rose to 121.9 in June 2021 from 120.1 in the previous month. The PPI- M was 7.4% higher than 113.5 in the corresponding month last year. The increase in prices of food products and beverages, chemicals and chemical products, basic metals, fabricated metal products, rubber and plastic products, wearing apparel, machinery and equipment, wood and products of wood & cork; articles of straw and plaiting materials/ Paper and paper products outweighed the decline in prices of other transport equipment.

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 7.0 40.0 8.0 5.9 6.0 30.0 4.5 7.4 6.0 5.0 4.1 20.0 6.7 4.0 % % 10.0 -0.6 4.0% 3.0 0.0 -8.6 2.0 2.0 2.4 -10.0 1.0 -20.0 0.0 0.0 Jul-20 Jan-21 Jun-20 Jun-21 Oct-20 Apr-20 Apr-21 Sep-20 Feb-21 Dec-20 Aug-20 Nov-20 Mar-20 Mar-21 Jul-20 May-20 May-21 Jan-21 Jun-20 Jun-21 Oct-20 Apr-21 Sep-20 Feb-21 Dec-20 Aug-20 Nov-20 Mar-21 Headline Core May-21 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 Broad Money Liabilities (BML) grew by 18.8% in June 2021 compared with the same month last year on account of an all components except debt securities. Claims on other sectors (excluding financial derivatives) were higher by 17.2% (y-o-y) compared with June 2020. However, BML contracted by 0.1% while claims on other sectors (excluding financial derivatives) grew by 2.5% compared with the previous month.

Table 4: Components and Sources of BML MUR mn Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 June-21 Broad Money Liabilities 7,03,593 708,184 710,613 710,710 7,63,284 7,65,919 7,65,366 Currency with Public 39,611 38,498 38,230 38,931 39,705 39,961 39,426 Deposit Liabilities 6,43,951 649,072 652,503 655,895 7,10,022 7,13,129 7,13,285 Debt securities 20,032 20,614 19,880 15,884 13,558 12,829 12,654 Claims on other sectors 5,33,239 5,45,224 5,35,927 529,364 5,73,215 5,78,157 5,92,711 (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 May-21 1.85 4.55 0.15-0.60 0.00-3.10 Source: Bank of Mauritius

External sector 1. Exports, imports and trade deficit • Trade deficit widened to MUR 11 billion in May 2021 from MUR 9 billion in April 2021. Trade deficit during the month was higher than MUR 8.6 billion in May 2020. • In May 2021, the total imports stood at MUR 16.9 billion recording a 21% rise over the previous month and 41.8% rise over the corresponding month last year. Total exports during the month stood at MUR 6.5 billion, 10.8% higher than April 2021 and 55.4% higher than May 2020. • All major items of trade have witnessed a growth in both exports as well as imports except machinery & transport equipment, crude materials and animals & vegetable oils, fats & waxes which have declined during the month. • The top six export destinations of Mauritius were (14% share), (10%), (7.9%), (7.6%), (6.6%) and (6.6%) whereas the top six import partners were (16.3%), U.A.E (12.6%), (11.9%), South Africa (9.5%), France (5.7%) and Brazil (4.4%).

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

250.0 193.8 200.0 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 150.0 - 75.5 100.0 % (2,000) 50.0 0.0 (4,000) 27.941.8 -50.0 (6,000) -100.0 MUR mn (8,000) 6212 - 6664 - Jul-20 Jan-21 Jun-20 Oct-20 Apr-21 Sep-20 Feb-21 Dec-20 Aug-20 Nov-20 Mar-21 May-20 May-21 (10,000) 8214 8366 - 8646 - - 8,872 9,013 9,097 - - Export growth Import growth - 9,587 10,318 10,613 11,098 11,153

(12,000) - - - - - 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 The continued to remain under pressure in Chart 7: Average monthly exchange rate (MUR/$) June 2021. It weakened to a historic low of MUR 41.47 per US Dollar. It weakened by 1.3% compared with MUR 40.92 in the previous month and by 2.7% compared with MUR 40.39 in Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 the corresponding month last year. 39.000

The average MUR/USD exchange rate for the twelve months 39.500 ended June 2021 was MUR 40.47 per US Dollar. It witnessed 40.000 40.393 a depreciation by 6.3% compared with MUR 37.91 per US Dollar in the twelve months ended June 2020. 40.500

MUR/US $ 41.000

41.500 41.466 42.000

Source: Statistics Mauritius 4. Foreign exchange reserves The gross official international reserves depleted by 4.2% Table 6: International forex reserves and import cover to USD 7.3 billion in June 2021 from USD 7.6 billion in the Gross official Import cover Month previous month. However, they were 1% higher than international reserves (USD Mn) (in months) USD 7.2 billion in the corresponding month of the Jun-20 7,194.1 16.9 previous year. Jul-20 7,655.9 17.9 Aug-20 7,268.6 16.9 In June 2021, the import cover remained unchanged at Sept-20 7,206.0 16.9 18.1 months compared with the previous month. It was Oct-20 6,973.4 16.4 higher than import cover of 16.9 months in June 2020. 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 Jun-21 7269.5 18.1 Source: Bank of Mauritius

5. Tourism The tourist arrivals in Mauritius rose from 115 in May Chart 8: Tourist arrivals and earnings 2021 to 280 in June 2021. This number continues to 1,400 800 remain far below the pre-pandemic level and is reflective 1,200 of the impact of the coronavirus led disruptions on the 1,000 600 tourism sector. With phased re-opening and travel 800 guidelines issued for vaccinated individuals, the number 400 600 of incoming tourists in Mauritius is likely to witness an Rs. Mn 400 uptick. 200

200 254 281 748 383 414 195 215 222 243 176 103 25 11 280 - 20 0 In May 2021, the gross tourism earnings retreated to USD 11 million from USD 25 million in the previous month. Jul-20 Jan-21 Jun-20 Jun-21 Oct-20 Apr-21 Sep-20 Feb-21 Dec-20 Aug-20 Nov-20

Mar-21 May-20 May-21

Tourist earnings (Rs. Mn) Tourist arrival

Source: Statistics Mauritius

6. Gross Direct Investment flows The direct investment flows into Mauritius were at MUR Chart 9: Gross Direct Investment Flows 14.19 billion in 2020, 36% lower than MUR 22.29 billion in 25,000 2019. Majority of funds inflows were directed to the real estate activities (MUR 8.53 billion) followed by manufacturing 20,000 sector (MUR 1.64 billion). 22,342 15,000 22,289 20,373 The funds inflows in the first quarter of 2021 stood at MUR 20,045 18,497 2.03 billion, 34% lower than MUR 3.08 billion in the 10,000 18,161 MUR mn

corresponding quarter last year. The primary recipient of fund 14,193 13,766 13,726 inflows was real estate activities (MUR 1.58 billion) followed 5,000 12,894 by accommodation and food service activities (MUR 0.23 3,079 2,032 billion). Inflows were lower in all sectors except water supply; - sewerage, waste management and remediation activities, Q1-… Q1-…

wholesale and retail trade; repair of motor vehicles and 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 motorcycles and accommodation and food service activities. Source: Bank of Mauritius

Majority of the inflows originated from the developed countries (59% share) and the contribution of the developing countries stood at 41% of the total inflows.

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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