Post-Budget: IMF Backs Mauritius’s Plan to Reduce Debt by 12%

The International Monetary Fund (IMF) has endorsed Mauritius’s recent budget reforms aimed at increasing tax revenues without hindering economic growth or hurting vulnerable groups. In its July 15 report titled “Mauritius’s Economy Depends on Sustainable Public Finances,” the IMF states that the success of this strategy will depend on careful, phased implementation of the measures.

The country has evolved from an agriculture-based economy to a diversified, upper-middle-income economy.

However, new challenges are emerging, including high public debt, increasing public investment needs, low productivity, and an aging population.

To address these issues, the IMF emphasizes that the government’s fiscal policy should be recalibrated to maintain economic prosperity that benefits all Mauritians.

IMF’s View on Fiscal Sustainability Measures

For the 2025-2026 budget, Mauritius prioritizes fiscal sustainability. The goal is to improve public finances while promoting inclusive, sustainable growth.

The IMF recommends several measures, including increasing revenue collection, reforming pensions, and improving expenditure efficiency. The recent budget aligns closely with these suggestions.

Government’s Goals

• Increase tax revenues by over 2% of GDP in 2025-2026.
• Cut public spending by more than 1% of GDP during the same period.
• Reduce public debt from 87% of GDP in 2024 to 75% by 2030.

Efforts to Optimize Spending

The IMF sees potential in reducing poorly targeted and regressive fiscal transfers. For example, social subsidies currently benefit relatively few poor people—only 11% of social aid recipients are considered poor.

The budget is proposing the gradual elimination of these less targeted subsidies, freeing resources to fund programs that assist the most vulnerable.

This approach aims to make public finances more sustainable, ensuring the economy remains prosperous as long as fiscal viability is maintained.

Enhancing Revenue Collection

Given that tax exemptions were worth 4.6% of GDP in 2024-2025, the budget plans to phase out certain VAT and excise duty exemptions, especially in areas like construction, real estate, and electric vehicles. It also proposes lowering tax payment thresholds and introducing new taxes.

These reforms are designed to increase revenue without negatively impacting economic growth or vulnerable groups.

Pension Reform

The IMF suggests that pension spending can be made more sustainable. Currently, pension benefits are high, and the number of beneficiaries is growing, putting pressure on public finances.

Maintaining the current system would shift significant costs to future generations, especially since the younger population is small compared to older retirees.

Gradually raising the retirement age to 65, aligned with official retirement age, can help sustain the system, reduce intergenerational inequality, and protect vulnerable groups. The recent budget reflects this direction.

Key Data

• Since 2019, basic retirement pensions (BRP), available to all Mauritians aged 60 and over, have more than doubled.
• Over the next 30 years, the dependency ratio among the elderly is expected to double.

Mariana Colacelli is IMF Mission Chief for Mauritius, and Felix Simione is a senior economist at the IMF’s Africa Department.

Source: Defi Media