Document of The World Bank FOR OFFICIAL USE ONLY Report No. 163455-MU INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP FRAMEWORK FOR MAURITIUS FOR THE PERIOD FY17-FY21 August 30, 2021 Southern Africa Country Management Unit Eastern and Southern Africa Region International Finance Corporation Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. The date of the last Country Partnership Framework (FY17 – FY21) was May 23, 2017 FISCAL YEAR July 1 – June 30 CURRENCY EQUIVALENTS 42.99 MRU / USD (August 25, 2021) ABBREVIATIONS AND ACRONYMS ABSA Bank of South Africa IMF International Monetary Fund AFD Agence Française de Developpement IOTC Indian Ocean Tuna Commission AML Anti-Money Laundering HIC High Income Country APEI Accelerated Program for Economic MIC Mauritius Investment Corporation Integration ASA Advisory Services and Analytics MIGA Multilateral Investment Guarantee Agency MUR Mauritian Rupee BoM Bank of Mauritius NTB Non-tariff Barriers BB Bank budget NYCBE Nine Years Continuous Basic Education BRP Basic Retirement Pension PLR Performance and Learning Review CEM Country Economic Memorandum PPP Public-Private Partnership CFT Combating the Financing of Terrorism RAS Reimbursable Advisory Services CPF Country Partnership Framework SADC Southern Africa Development Community COMESA Common Market for Eastern and SCD Systematic Country Diagnostic Southern Africa CWA Central Water Authority SEZ Special Economic Zone DPO Development Policy Operation SME Small and Medium Enterprises EU European Union SPV Special Purpose Vehicle GDP Gross Domestic Product SWIOFish Southwest Indian Ocean Fisheries FY Fiscal Year TA Technical Assistance FATF Financial Action Task Force TDB Trade and Development Bank GoM Government of Mauritius UN United Nations IBRD International Bank for Reconstruction WBG World Bank Group and Development ICT Information and Communication Technology IBRD IFC MIGA Vice President: Hafez Ghanem Sergio Pimenta Ethiopis Tafara Director: Idah Pswarayi- Kevin Njiraini Merli Baroudi Riddihough Task Team Leader: Erik von Uexkull Marcelle Ayo Luisa Felino 2 MAURITIUS PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP FRAMEWORK I. INTRODUCTION 1. This Performance and Learning Review (PLR) assesses progress under the FY17-21 Mauritius Country Partnership Framework (CPF) discussed by the Board on May 23, 2017 (Report No. 112232- MU). The World Bank Group (WBG) program, underpinned by the Systematic Country Diagnostic (SCD) and strategically aligned with Government’s Achieving Meaningful Change program (2015-19), is structured around three focus areas: (i) Increased Competitiveness, (ii) Fostering Inclusion, and (iii) Bolstering Resilience and Sustainability. Preparation of the PLR, originally intended for FY19, was delayed initially due to impending elections (which took place in November 2019) followed by the outbreak of the Covid-19 pandemic. Given changes in context since the start of the CPF and the timing of the review, the PLR serves to: (i) provide an updated assessment of program performance; (ii) adjust the World Bank’s engagement strategy to enhance the program’s relevance and effectiveness; and (iii) extend the CPF by one year through FY22 in line with the WBG Covid-19 Crisis Response Approach Paper’s recommendation to defer the development of new CPFs until the return of steadier conditions. The high-level objectives of the CPF are well-aligned with the Government’s new program (2020-24) and responsive to the demands of a sustained and inclusive recovery from Covid-19. An SCD update, launched in parallel with the PLR and scheduled to go to the Board in the second quarter of FY22, will inform the new CPF. Preparation of the new CPF is proceeding at a pace to be delivered at the end of FY22. The one-year extension will also allow for a more in-depth engagement with authorities on the new CPF than would have been possible under the crisis conditions of the past FY. 2. While Mauritius temporarily achieved High-Income Country status in 20191, structural constraints to inclusive and sustained growth have emerged in recent years which, compounded by the impact of Covid-19, pose a challenge to the country’s economy and development trajectory. Having developed from a remote mono-crop producer at the time of independence to an inclusive, diversified high-income economy, Mauritius is arguably Africa’s greatest success story. In recent years, Gross Domestic Product (GDP) growth averaged 3.6 percent from 2016 to 2019, but was increasingly driven by consumption as the investment level declined and exports contracted. Export competitiveness has dropped, public debt levels are rising, and structural unemployment and high inactivity rates are excluding some, in particular low-income women and youth, from economic opportunities. Further progress to strengthen policy coherence and implementation capacity is needed to enhance government effectiveness in addressing these challenges with more limited fiscal resources. Mauritius delivered a highly successful health response to the global Covid-19 pandemic with early enforcement of strict lockdown and quarantine measures and has procured sufficient vaccines to reach herd immunity. The pandemic, however, sent the economy into deep recession in 2020 which led to its return to Upper Middle-Income Country status in 2020, and the path of recovery remains uncertain. 3. In this context, progress of the country program has been mixed and overall impact modest, and the economic and social shocks resulting from Covid-19 have aggravated existing vulnerabilities. Lending envisioned in the CPF has not been realized given readily available domestic liquidity and access to grants and concessional financing, as well as the cancellation of a regional operation due to issues in partner countries. The WBG has delivered a robust portfolio of Analytical and Advisory Services (ASA), 1 The strong recession in 2020 due to the impact of COVID-19 led to the country’s reclassification to Upper Middle Income status. 3 increasingly supported by Reimbursable Advisory Services (RAS) agreements. Positive results are emerging in all focus areas: Barriers to trade were removed enhancing regional integration efforts; a major education reform introduced striking changes that promote inclusion and provide additional support to lagging students; recently announced legal changes will further advance doing business reforms; and supervision of the banking sector is increasingly risk-based. Four of six outcomes have already been achieved or are on track or partially on track to be achieved during the CPF period. Adjustments to the program introduce a new objective to address institutional capacity issues and Government’s crisis response capacity, drop select objectives where impact has been limited, and add selectivity considerations to increase program effectiveness. II. MAIN CHANGES IN COUNTRY CONTEXT A. New and emerging development issues 4. In 2019, Mauritius temporarily joined the ranks of High-Income Countries (HIC).2 This achievement marks a milestone in the small island nation’s development trajectory from a poor, remote mono-crop producer to arguably Africa’s greatest development success story. At the time of independence in 1968, per capita GDP was USD260 with agriculture, mainly sugar cane production, contributing more than 22 percent of GDP. Over the following decades, successful public-private collaboration paved the way for economic diversification and employment creation. By 2003, economic transformation had reduced agriculture’s share of GDP to below 10 percent as Mauritius’ economy diversified - exporting textiles, tourism, and financial and information and communication technology (ICT) services. However, the severe economic impact of Covid-19 brought Mauritius back to Upper Middle Income Country status in 2020. 5. At the same time, serious structural constraints to inclusive and sustained growth have developed in recent years. Even prior to Covid-19, four interrelated challenges to sustained growth emerged or further deteriorated during the CPF cycle to date (see Figure 1): ➢ A growth trajectory increasingly driven by consumption, with a declining share of investment, and stagnating capital productivity. ➢ A sustained loss in overall export competitiveness, reflected in a combination of declining market share in traditional exports and services and a failure to quickly develop or scale up new activities in line with the country’s evolving comparative advantage. ➢ Continuous fiscal deficits combined with limited growth effects of public expenditure, resulting in rising levels of public debt relative to GDP. ➢ An aging population and increasing friction in the labor market, resulting in increasing inequality in labor income, high structural unemployment, inactivity and skills shortages, and the exclusion in particular of low educated women and youth from economic opportunities. 6. Mauritius is one of Africa’s top performers on a range of institutional and governance indicators, yet there is scope for further improving policy coherence and implementation effectiveness. Periodic multiparty elections, a clear separation of powers, and a relatively free and independent media underpin Mauritius’ commitment to good governance. In public sector management, important initiatives 2 This classification was announced by the World Bank on July 1, 2020 based on 2019 data for per capita GDP, net income from abroad, and price and exchange rate developments. In 2020, due to the effect of COVID-19 on GDO, net income, and the exchange rate, GNI per capita declined by 20.6 percent to USD10,230, a 20.6 percent decline over the 2019 figure driven by a combination of the contraction in GDP and net foreign income, leading the country to fall back below the high-income threshold (USD12,695 for 2020). 4 have shifted away from a traditional input-based annual budget program to a strategic, performance- oriented multiannual exercise, and a comprehensive internal control framework exists to ensure that government resources are used economically and effectively. Together these translate into strong scores across many Worldwide Governance and Public Expenditure and Financial Accountability indicators. Recent years, however, have seen a deterioration in some of these indicators. A recent Country Economic Memorandum (World Bank, 2021) cites areas of policy incoherence and lack of implementation and planning capacity that undermine progress against key development objectives. These shortcomings affect, in particular, complex and multi-sector second generation reforms that require a high level of coordination and coherence across different agencies, such as skills development and active labor market policies, Foreign Direct Investment attraction, and state support to the private sector. Figure 1: Structural Constraints to Inclusive Growth Source: World Bank (2021) 7. Mauritius delivered a highly successful health response to the global Covid-19 pandemic through a hard lockdown and subsequent quarantine measures. A first outbreak in March 2020, with a total of 525 cases, claimed 10 lives. The government imposed a strict lockdown that forced most firms to close in March and April and lasted until a gradual reopening starting in May 2020. As local cases dropped to zero in April 2020, strong quarantine requirements remained in place for entry into the country which depressed tourist arrivals to almost none. In early March 2021, Mauritius detected new cases of local transmission of Covid-19 and a second lockdown was promptly issued, though with more generous 5 provisions for economic activity to continue. As of July 11, 2021, this second wave had led to an additional 1,560 cases and 8 deaths with a recovery rate of 81 percent.3 8. Mauritius has procured enough Covid-19 vaccines to achieve its goal of fully vaccinating 60 percent of the population, but the timeline for re-opening the economy is ambitious. As of July 11, 2021, 599,080 residents (47.3 percent of the population) had received their first dose of a vaccine4, with Tier 1 of the priority population fully vaccinated. Deploying the remaining vaccines in time to meet Government’s ambitious aim of fully re-opening the borders by October 2021, however, will require additional vaccination teams and centers as well as adequate supplies needed to administer the vaccines. Given the progress made and introduction of a dedicated fuel surcharge to finance vaccines, Government recently withdrew its request for World Bank assistance with vaccine procurement and deployment.5 9. While the health response has been successful, the impacts of Covid-19 on Mauritius’ economy and its people have been severe. Mauritius is arguably the most affected country in Africa in terms of foregone GDP growth, dropping from a projected 3 percent to an actual of -15 percent in 2020. Job and income losses are disproportionately affecting informal and self-employed workers already at the bottom of the income distribution. Learning outcomes, particularly among disadvantaged students, have likely suffered. The combined economic and social effects of emerging structural constraints and Covid-related disruptions are discussed below. B. Key macroeconomic changes and debt developments 10. While largely stable until the pandemic, growth in the CPF period was increasingly driven by consumption as the investment level declined and exports contracted. Average GDP growth was 3.6 percent between 2016 and 2019, broadly in line with growth in the years before the CPF period. However, consumption increased from 87.2 percent of GDP in 2009 to 91.2 percent in 2019. Over the same time, the investment to GDP ratio decreased from 25.5 to 19.6 percent, with most of the decline in private sector investment. In addition, investment has mainly gone into sectors with relatively low productivity and technological sophistication, most notably real estate. At the same time, Mauritius lost export market share in most traditional export sectors (tourism, apparel, sugar, fish, business services) that still account for the bulk of total exports while competitive new sectors such as medical devices did not grow fast enough to absorb the decline (World Bank, 2021). As a result, exports declined on average 1.5 percent per year between 2016 and 2019, while imports continued to grow. It is noteworthy that the current account deficit nevertheless narrowed over the same time period due to growing surpluses in the income account, linked to the global business sector. 11. The pandemic caused a deep recession in 2020 and the prospects for a fast recovery remain uncertain. It is estimated that GDP contracted by 14.9 percent in 2020 due to the lockdown imposed from March 2020 to May 2020 and the absence of tourism, which directly accounted for 7 percent of value addition to the Mauritian economy in 2019 and declined by 65.8 percent in 2020. Other closely linked sectors such as transport (-27.7 percent) and recreational services (-31 percent) also experienced severe contractions. Mauritius responded with a large state support program implemented by the government, Bank of Mauritius (BoM), and parastatals, including the State Investment Company and the Development Bank of Mauritius, to support the private sector in coping with the effects of Covid-19. The big-ticket items alone add up to approximately MRU 147 bln or 32 percent of GDP (World Bank 2021) if fully implemented, 3 www.besafemoris.mu 4 Ministry of Health and Wellness/World Health Organization COVID-19 Situation Report 12 July 2021. 5 As a result, the World Bank recently dropped the proposed Mauritius COVID-19 Response Project (P176367). 6 making Mauritius’ Covid-response package the fourth largest in the world as a share of GDP (after Germany, Italy and Japan, according to IMF data). Some of the measures, including a wage support scheme that covered the entire economy during the first lockdown and was eventually focused on tourism and related industries (MUR 16 bln) as well as a self-employed assistance scheme (MUR 7 bln), were disbursed quickly and through pragmatic arrangements with minimal overhead. The Mauritius Investment Corporation (MIC) stands out in terms of its size and medium to long-term perspective of its engagement. MIC was founded as a limited company fully owned by the Bank of Mauritius with a budget of MUR 80 bln and a mandate to provide crisis relief to systemically relevant companies, but also to invest in projects that support the strategic objectives of the government, namely in terms of developing innovation focused activities and self-sufficiency in basic necessities. Currently, MIC has committed a total of approximately MUR 30 bln of which around 50 percent to large hotel groups in the form of quasi-equity loans. These measures appear to have been effective in preventing widespread bankruptcies or a contagion of the crisis to the banking sector, but also came at a high cost to government and potentially diminished the incentives for restructuring or exit of firms that had already become unviable pre-Covid. Additional measures under the subsequent ‘plan de soutien’ (MUR 16.5 bln earmarked and 48 percent committed) and ‘plan de relance’ (MUR 10.5 bln earmarked, 14 percent committed) are still being implemented. 12. Even pre-Covid, public debt was on the rise. Although fiscal deficits were limited to an average of 3.3 percent of GDP between fiscal years 2015/16 to 2018/19, additional government expenditure took place through transactions with special funds, leading to an overall increase in public debt from 62 percent of GDP at the beginning of FY2015/16 to 65.4 percent at the end of FY2018/19. Large increases in social spending were the main driver of rising budgetary government expenditure, with its share of total expenditure increasing from 22 percent on average over the first half of the decade to 28 percent during the latter half. Extra-budgetary expenditure mostly supported investment projects, including large initiatives like the new metro express system and a sports complex. 13. The fiscal shock from Covid-19 further added to public debt and contingent liabilities as most additional expenditure was financed by an exceptional budget transfer from the Central Bank, but while the country has not issued commercial external debt recently it has the capacity to do so if needed. As a result of rising expenditure in response to the pandemic and the sharp contraction in GDP, the debt stock rose from 65 percent of GDP in June 2019 to 95 percent in June 2021 and will likely remain elevated in the medium term. In addition, Mauritius undertook non-refundable transfers to the budget from the Central Bank amounting to a total of approximately 13 percent of GDP in fiscal year 2020/21, and the Bank of Mauritius has also been heavily involved in the direct financing of Covid-response measures. Fiscal risk is increasingly hard to ascertain, as contingent liabilities arise from the operations of Special Purpose Vehicles used for public investment, weakening of the Central Bank’s balance sheet, and its exposure to significant commercial risk through the Mauritius Investment Corporation. Moody’s announced a downgrade of Mauritius’ sovereign long term foreign and local currency issuer rating from its longstanding Baa1 to Baa2 (negative outlook) in March 2021. However, the debt composition is favorable with limited exchange rate and rollover risk as most debt is domestic and medium (1-5 years) or long term (>5 years). Furthermore, Mauritius has a strong debt management office and strategy that since 1995 has relied mostly on domestic borrowing and limited bilateral external borrowing at concessional long-term rates. Thus, while Mauritius has chosen not to issue commercial external debt in recent years, it has both the credit rating and institutional capacity to do so if needed. See Annex 5 for key macroeconomic indicators. 7 C. Changes to poverty reduction and shared prosperity 14. Pre-pandemic, poverty levels in Mauritius had continued to decline and a long-term trend increase in inequality was reversed by strong government intervention. Poverty, measured at upper middle-income country threshold, is projected to have fallen from 18 to 10.5 percent between 2012 and 2019. The Gini index for household disposable income increased from 33.3 to 36.0 between 2006 and 2012 and declined to 34.2 in 2017 as public transfers contributed to mitigating rising wage income inequality (Ranzani, 2019). In December 2016, the Social Integration and Empowerment Act introduced a targeted anti-poverty scheme under which every adult on the Social Register of Mauritius living below the absolute poverty line of MUR 2,720 and who has signed a Marshall Plan Social Contract is entitled to a monthly subsistence allowance. A negative income tax (wage subsidy for low-income earners) was introduced in 2017 as was a minimum wage in 2018 which likely further reduced inequality (latest available household survey is from 2017). Simulation results based on changes in economic activity estimate a substantial increase in the poverty rate due to Covid-19 from 10.5 percent in 2019 to 15.9 percent in 2020. 15. While Mauritius has an effective social protection system, the fiscal cost has increased dramatically over the past decade. Noncontributory benefits include basic pensions, which cover the elderly, the handicapped, widows, and orphans, irrespective of their economic status, as well as more targeted allowances such as social aid, food aid, income support, unemployment hardship relief, and funeral grants. Overall, the system has been effective in mitigating poverty. In 2017, the poverty headcount ratio (measured against the MUR 6,404 a month per adult equivalent poverty line) would have been 15.1 percent, but declined to 9.2 percent as a result of social transfers. The Gini index of pre-fiscal income was 40.0 percent. Direct and indirect taxes, as well as transfers and subsidies, were overall progressive, thus reducing the Gini to 34.2 percent (Ranzani 2019). At the same time, the average share of social protection expenditure increased from 22.2 to 27.6 percent of total expenditure between 2010- 14 and 2015-19. The bulk of social spending, more than 50 percent, is on the basic retirement pension (BRP) which is increasingly costly, poorly targeted, and creates adverse labor market incentives. The benefit is available to every Mauritian reaching the age of 60 (unlike the contributory pension, which starts at 65), despite a significant increase in life expectancy at age 60 from 12.6 years to 20.6 years since the program’s inception. As of December 2019, the BRP benefit was raised from MUR 6,210 per month to MUR 9,000 per month. An additional pension benefit through a newly introduced Contribution Social Generalisee for those aged 65 and above is planned for 2023/24 which could increase the total non- contributory pension to up to MUR 13,500 per month. Due to its universal nature, the BRP is not an efficient anti-poverty instrument, and , it encourages early retirement and adversely affects labor force participation of those reaching the age of 60. 16. Mauritius has a rapidly aging society, which is putting pressure on both the labor market and social security system. The population aged 60 and older, currently 18.1 percent of the total population, is expected to reach almost 25 percent by 2030, 30 percent by 2045, and 35 percent in 2058. In addition, the working age population, aged 15 to 59, is expected to fall from the current 65 percent of the population to 53 percent of the population by 2058, with an absolute decline of about 45 percent. Maintaining growth as the working age population declines has proven to be challenging in other rapidly aging countries, and a rising dependency ratio will put increasing pressure on the social protection system in the coming decades through a rising share of pension recipients vis a vis contributors. 17. At the time of CPF preparation, an ambitious education reform effort was just underway that aimed to address shortcomings in the inclusiveness of education which result in high inactivity and unemployment, especially for low-skilled women and youth. Over 50,000 youth aged 16 to 29 are 8 neither in education nor in employment, and only about one in three has obtained at most a certificate of primary education. Similarly, only one in two women participates in the labor market, and only one in three among women with low education. In 2016, the government embarked on a comprehensive restructuring of basic education through the Nine Years of Continuous Basic Education (NYCBE) reform. The reform seeks, among other goals, to ensure that all preschoolers are well-prepared for a sound primary school experience and that all children complete nine years of basic education. Toward these ends, the NYCBE reform has ushered in striking changes, among them the abolition of the prevocational track in Grades 7-9, so that all children now follow the same curriculum in their first nine years of basic education and additional new support programs for lagging students. However, further progress is required in particular in the areas of early childhood development, lagging schools and educators, and educational technology to improve teaching and learning (World Bank, 2021) in order to address the root causes of wide disparities in learning outcomes. 18. As a result of the Covid-related lockdown in 2020, the school calendar was shifted to end in March 2021 rather than November 2020; the impact on learning outcomes has yet to be assessed. Some of the end-of-year examinations began in March 2021 while the country remained in full lockdown due to a new outbreak of Covid-19. The Ministry of Education rolled out various online learning programs and platforms. The full effects of the two lockdowns on student learning outcomes will only be seen in results on national exams taking place in March and April 2021, but there is a high likelihood that disparities in learning outcomes may have been aggravated as students from low-income households were at a severe disadvantage to compensate for foregone face-to-face school through digital technology or parent- supported learning. 19. Despite extensive government support to the private sector, the severe recession brought about by Covid-19 caused job and income losses which disproportionately affected informal and self- employed workers. As a result of lock-down measures and the absence of tourism following border closures, the unemployment rate among those aged 16 to 64 rose from 7.2 to 10.4 percent between the first quarter and December of 2020. The increase was roughly proportional between men (5.2 to 8.6 percent) and women (9.9 to 13.1 percent) though starting from a much higher level for women. Further job losses were prevented by a strong government response to mitigate the effects of the crisis which committed the equivalent of approximately 32 percent of GDP to various schemes providing wage subsidies, emergency credit lines, and other types of support to firms (World Bank 2021). In December 2020, 68.8 percent of those in self-employment and 20.0 percent of those in wage employment reported that their income had declined in comparison to the pre-pandemic level.6 20. The economic and social turmoil resulting from Covid-19 has drastically reduced Mauritius’ fiscal space while at the same time putting additional demands on the social protection system. The combination of reduced revenue and increased expenditure in response to Covid-19 has put a heavy strain on public finances, and the borrowing requirement in FY2019/20 reached 13.1 percent of GDP while the debt to GDP ratio reached 83.4 percent at end fiscal year. Medium-term projections foresee a further increase unless a strong consolidation effort is undertaken. At the same time, the above-described disruptions in the labor market and income losses, in particular for those in informal and self-employment, will likely create additional needs for social protection. Thus, the impact of Covid-19 has further raised the stakes for more efficient resource use in social protection. 6 Statistics Mauritius. 9 III. SUMMARY OF PROGRAM IMPLEMENTATION A. Program and portfolio performance 21. Informed by development priorities identified in the SCD and country consultations and aligned with Government’s Achieving Meaningful Change program (2015-19), the CPF’s overall goal was to help Mauritius accelerate inclusive growth by strengthening the enabling environment for private sector growth. The CPF laid out three main areas of engagement: (i) Increasing competitiveness; (ii) Fostering Inclusion; and (iii) Bolstering Resilience and Sustainability which remain relevant in the Covid-19 and post- Covid-19 periods. Each focus area covered two outcome areas supported by a modest lending program and robust analytic and advisory services portfolio. Adopting a lesson learned from previous operations in Mauritius and elsewhere, the CPF only defined the program’s first two years of activities (FY18 -19) to allow for flexibility to respond to emerging Government priorities and experience to ensure the program’s relevance. Additional lending was to depend on country demand and overall performance. 22. The modest lending pipeline proposed in the CPF did not materialize. The CPF envisioned two loans: the second of a two-part regional development policy series to support the Accelerated Program for Economic Integration (APEI) (USD15 million); and a Southwest Indian Ocean Fisheries (SWIOFish) Investment Project Financing operation (USD10 million). Of the five APEI members, only Mauritius and Seychelles met the adequacy criteria for the second APEI operation and Seychelles chose not to participate, so the loan was canceled in 2018. Despite high-level interest in the development of the ocean economy, the proposed SWIOFish project was dropped due to lack of demand for IBRD financing. In early 2020, the Government of Mauritius requested a new budget support operation in response to the unfolding Covid-19 pandemic. Discussions, including with the Agence Française de Developpement (AFD) as co-financier, reached an advanced stage. Eventually, the USD100 million IBRD portion of the envisaged loan was cancelled due to concerns over the macroeconomic situation and unorthodox Central Bank financing measures, while AFD proceeded with a EUR 300 million Cat-DDO. 23. As envisioned, the World Bank supports a large and growing number of ASA products and activities, funded through a combination of Bank budget (BB), trust funds and Reimbursable Advisory Services. (See Annex 1 for proposed, actual and planned activities). Seventeen ASA activities, six of which were financed through RAS, have been delivered to date, and an additional two RASes are ongoing. This robust ASA/RAS portfolio is aligned with CPF priorities and has gradually expanded and broadened in response to client demand and evolving circumstances. Annex 6 illustrates the alignment of completed, ongoing and planned ASA with CPF focus areas. 24. IFC is selectively supporting and promoting private sector development in Mauritius. Priority areas relate to: (i) supporting the mobilization of both local and foreign direct investment in key sectors of the economy, such as infrastructure, agribusiness, tourism and financial services; (ii) strengthening private sector access to finance; (iii) improving access to finance by small and medium enterprises (SMEs); and (iv) promoting South-South transactions. During FY2020, IFC committed a total of USD37.5 million to Bank One to strengthen the Bank’s long-term funding position and support the expansion of its lending operations to SMEs. The other IFC portfolio activity consists of an investment in a private equity fund with current exposure at USD3.5 million. IFC continues to focus on economic recovery, as it seeks to support the textile/garment sector, financial sector (banks and private equity funds) as well as climate change (renewable energy sector and waste to energy sector). An IFC operation is underway to respond to the Covid-19 pandemic through personal protective equipment advisory services for a Mauritius-based integrated design, development and manufacturing company specializing in percutaneous interventional medical devices. Opportunities are also being explored in waste management PPP solutions. 10 25. MIGA is supporting Mauritius’ financial sector to provide needed credit to SMEs and corporates and to promote regional trade finance activities. MIGA issued a capital optimization guarantee to Absa Group of South Africa (ABSA) for USD94 million backing its Mauritian subsidiary. The transaction will enable ABSA to have additional lending headroom for the bank’s SMEs, corporate and project finance clients. In addition, Mauritius is expected to benefit from a MIGA guarantee of approximately USD 435 million, covering loans to the Eastern and Southern African Trade and Development Bank (TDB). The guarantee will support the growth and diversification of TDB’s trade finance portfolio throughout the COMESA region. B. Evolution of partnerships and leveraging 26. While donor activity in Mauritius is limited given the country’s small size and high-income level, the WBG has purposefully pursued and leveraged partnerships in its knowledge and advisory work. The World Bank actively participates in the new development partner coordination mechanism, with quarterly meetings and an online project register, initiated through the United Nations resident coordinator’s office. The World Bank and UN resident coordinator’s office co-sponsored a digital research and exchange platform with local development partners, academics, and civil society to exchange data and research findings on the economic and social impact of Covid-19. Close collaboration with the International Monetary Fund on economic monitoring and policy dialogue has been maintained. C. Overview of progress towards achieving CPF objectives 27. Progress has been mixed across results areas, with the Covid-19 shock reversing progress in some areas, and the overall effectiveness of World Bank engagement has been modest. Two out of six original CPF objectives have been achieved; one is on track to be realized during the extension period; one is partially on track; and two are off track. Important results are emerging in regional integration, education inclusiveness, doing business and bank supervision, while progress in developing the ocean economy, strengthening the water sector and pension reform has been limited. Additional attention to enhancing public sector planning capacity in the final year of the program is warranted. CPF Focus Area 1: Increasing Competitiveness 28. The erosion of Mauritius’ external competitiveness has generally continued as market shares pre-Covid were falling for both manufacturing and service exports. The impact of the pandemic further depressed the competitiveness of the external sector, with the most lasting effects being the standstill in tourism and a significant increase in air freight cost due the absence of passenger traffic. Nevertheless, progress on regional integration can be noted with the continued removal of trade barriers and increasing bi- and multilateral initiatives for deeper integration, including bilateral Special Economic Zones (SEZ) with Senegal and Madagascar, the signature of new preferential trade agreements with Turkey, India and China, and progress on the African Continental Free Trade Area. 29. Objective 1: Improved environment for regional trade and investment is on track. Supported under the first APEI Regional Development Policy Operation (DPO), the target for the number of businesspeople entering Mauritius for 2021 (41,150) was exceeded in 2019 (50,543), before the Covid- related border closures. Import and export requirements were removed on 20 products, double the target of 10, and targets related to increasing the transparency of procedures and reducing expenditures were met. Key knowledge products supporting this objective analyzed the potential for increased agricultural trade in the region, provided support to the development of a bilateral SEZ in Madagascar as part of Mauritius’ Africa strategy, assisted the Economic Development Board in designing a manufacturing strategy relying heavily on regional production chains, and discussed the potential to upgrade exports by leveraging regional trade agreements as part of a FY21 CEM. Progress on digital governance, supported 11 by WBG-financed technical assistance, has made trade-related requirements more easily accessible. Mauritius remains a strong champion for further integration in the region, contributing actively to regional trading blocks COMESA, SADC and the new AFCFTA, as well as hosting the Indian Ocean Commission and Regional Multidisciplinary Center of Excellence that promote knowledge exchange and peer learning. 30. Progress under Objective 2: Build the Knowledge Base for Unlocking the Potential of the Ocean Economy has been limited and related indicators are off track. Supported under the Southwest Indian Ocean Fisheries 2 Project (SWIOFish2), Mauritius’ compliance with Indian Ocean Tuna Commission (IOTC) IOTC resolutions has increased modestly. The proposed follow-on lending operation designed to support achievement of this objective (Southwest Indian Ocean Fisheries 4) was dropped. The World Bank team delivered and disseminated a complex and comprehensive report in FY17, The Ocean Economy in Mauritius: Making it happen, making it last. The report was widely disseminated and has been used by the responsible line Ministry to inform strategy formulation, but implementation of key reforms has been limited. Private and public sector stakeholders expressed a general perception that the report was too high level and abstract. A number of follow up discussions have not led to the identification of new areas for World Bank support in this area. Given the lack of traction of WBG support to develop the Ocean Economy, the PLR will drop this objective. 31. With this lack of progress on the ocean economy, the priorities for unlocking new investment broadened during the CPF period and subsequent ASA covered both horizontal aspects of the competitiveness agenda (productivity, innovation, inclusiveness, business climate) and additional sectors (sugar, manufacturing, and ICT). Ongoing RAS-funded technical assistance on insolvency, secured transactions and doing business reforms developed concrete legal changes (e.g., registry for secured transactions for moveable assets, e-judiciary, and reform of the insolvency law) which were announced in the recent budget speech and are expected to further improve Doing Business performance. The CEM and recently completed Enterprise Survey-based productivity report underpin the focus on the impact of Covid-19 and priorities for a strong recovery. The Competition Commission adopted the CEM recommendations to strengthen its pro-competition advocacy role and more proactive detection of abuse of dominance, and capacity building was provided in both areas. CPF Focus Area 2: Fostering Inclusion 32. The rising trend in inequality appears to have been halted pre-pandemic through increasing public transfers and progress was made in poverty reduction; but the impact of Covid-19 is threatening some of these accomplishments, including in poverty reduction, labor market integration of low-skilled youth and women, and education. Implementation of comprehensive education reform is yielding important improvements in the inclusiveness of education. While social protection is overall effective, additional increases in the amount of the basic retirement pension coupled with the impact of Covid-19 further aggravate the need to also improve the cost efficiency of social protection measures. 33. Objective 3: Increased Capacity to Implement Education Reforms is on track. Under a recently completed RAS, the World Bank provided intensive, hands-on support to the successful implementation of the ambitious NYCBE education reform, including the integration of strong monitoring and evaluation frameworks. Other ASA drew attention to key areas of skills development to improve the inclusion of marginalized groups – particularly low skilled women and youth – and boost firm productivity. The FY21 CEM highlights key remaining areas of education reform, both in higher skills development and inclusiveness, that continue to merit attention and provide a foundation for future WBG engagement. The Public Expenditure Review planned for FY22 will develop specific policy recommendations to better align education spending to these goals. Mauritius has also shared its experience on education reform with 12 African partners, including through (pre-pandemic) study visits supported by World Bank projects, most recently from Lesotho. 34. Under Objective 4: Strengthen Government Capacity to Develop Policy Options to Increase the Sustainability of Pensions Program, further increases in the Basic Retirement Pension have aggravated the situation during the CPF cycle while a recent reform accomplished mixed results. The key issue of pension reform was highlighted by the World Bank through ongoing dialogue and just-in-time knowledge products under Internal Order budgets throughout the CPF period. Reforming the basic pension remains a first order priority given its significant impact on government spending and poor targeting that run the risk of crowding out more pro-poor spending. The CEM has sparked a robust discourse while a recently announced reform has moved further increases to age 65 instead of 60, while at the same time dismantling the contributory pension system. With limited progress towards achieving the objective of fundamental pension reform despite ongoing efforts, the PLR will drop this objective. 35. Covid-19 further amplifies the urgency of broader social assistance reform. With a rapidly evolving social support system that has been effective in reducing poverty and inequality but at the cost of increased state dependency and rising expenditure, ASA work has increasingly focused on highlighting policy priorities to strengthen access to economic opportunities for disadvantaged groups – especially low skilled women and youth – while also making the case for a reallocation of resources from the general pension system to more targeted, pro-poor instruments. As highlighted in the FY21 CEM, this direction has become even more urgent in light of the impact of Covid-19 on the fiscal situation and the labor market. In addition to a reallocation of budget resources from the basic pension to more targeted pro- poor measures, the recent Country Economic Memorandum also recommends improvements in activating labor market programs in particular for low skilled youth and women and more emphasis on second chance education. The forthcoming PER will focus on quantifying the potential efficiency gains associated with different reform options. CPF Focus Area 3: Bolstering Resilience and Sustainability 36. The importance of public sector effectiveness to implement complex second generation reforms and respond effectively to unforeseen crises became apparent in light of Mauritius’ increasing structural challenges and eventually the Covid-19 shock. Water sector reforms have not advanced while financial sector governance remains an important issue in Mauritius, as evidenced by the country’s strong efforts to be removed from the Financial Action Task Force (FATF) and EU lists for Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT). Strengthened governance capacity was supported through ASA on digital governance, strategic planning, and a CEM chapter focused on public sector effectiveness. The forthcoming public expenditure review will also aim to further strengthen capacity for efficient resource allocation and outcome monitoring and evaluation. 37. Objective 5: Strengthened Management of Water Supply is off track. The World Bank Group has provided extensive support to the Ministry of Energy and Public Utilities to strengthen water management that has resulted in some progress in terms of capacity development of the Ministry and the Central Water Authority (CWA). The main reforms envisioned for the water sector - increasing efficiency and reducing waste by partnering CWA with a qualified private operator and price reforms- met strong political resistance from and did not move ahead prior to the November 2019 elections, after which the issue was overshadowed by the outbreak of Covid-19 and a focus on maintaining operations under pandemic conditions. In light of reform resistance and Covid-19, the PLR will drop this indicator and instead add one focused on strengthening government capacity for planning and crisis response. 38. Objective 6: Build Capacity to Implement Strengthened Financial Sector Governance is on track. With support under a RAS, significant progress has been made in the implementation of risk-based 13 supervision of the banking sector and the completion of the first National Risk Assessment for AML/CFT. Payments regulations have been adopted to facilitate access to new financial products and services to households and small business retailers, including mobile money. VI. EMERGING LESSONS 39. The absence of a lending program has limited the World Bank’s convening power in Mauritius and efforts to develop complex multi-sectoral reforms through ASA have been largely unsuccessful. This is evident in the lack of progress with regard to the development of the ocean economy, as well as the water sector reform envisaged under the CPF. Similarly, despite extensive knowledge work and inputs from the World Bank throughout the CPF period, fundamental pension reform to address the fiscal sustainability and targeting issues in the current system has yet to take place. RASes intended to design such reforms generally led to relevant recommendations with some scattered uptake but failed to generate multi-stakeholder implementation momentum for comprehensive reform. In addition to an assessment of potential development impact and alignment with the CPF, future ASA, including RAS, should be more selective and realistic about the limitations in convening and convincing power. Stakeholder engagement and prospects for implementation at counterpart level will need to be analyzed more carefully and prioritized prior to a decision on engagement. 40. At the same time, RAS-funded ASA has generally been effective where it provided specific implementation support to already well-defined reform efforts. RASes on education reform, financial sector governance and Doing Business reform all produced significant positive results which built on pre- existing reform momentum and established close working relationships with and provided intensive implementation support and capacity building to appropriate counterparts. Going forward, under similar circumstances, potential development impact informed by these prerequisites and alignment with the CPF remain the main selection criteria for new RAS or other ASA support. 41. As in other RAS-intensive countries, the World Bank’s knowledge work needs to balance client demand with ‘big picture’ items. With RASes focused on client-defined priorities, BB-supported core diagnostic ASA will be critical to ensure that the World Bank’s opinion on key ‘big picture’ questions is both well-articulated and heard. Although outcomes are less tangible in terms of specific reforms, Bank budget-funded ASA, including extensive knowledge work on inclusion and inequality and the recent CEM, has made important contributions to the knowledge base and public discourse on the country’s key development challenges, which is highly valued by stakeholders including the private sector, civil society and development partners. Pertinent ‘big picture’ topics include poverty reduction and inequality, women’s labor force integration, public financial management, social protection reform, and the role of state support in the economy. While generally more upstream in focus, the experience over the CPF period has also demonstrated the importance to ‘land’ such work in specific and actionable policy recommendations. During the extension period the program will continue to complement RAS with BB- funded ASA to draw attention to and make policy proposals on crucial big picture issues, thus focusing on core products such as the recent CEM and a planned PER. 42. Rightly seen as a development success by its African peers, Mauritius has valuable knowledge and expertise that it is willing to share with others, and the World Bank Group can play a key role in facilitating such exchanges. Throughout the CPF period, the WBG has capitalized on opportunities to leverage Mauritius’ expertise in areas such as education reform, business climate reform, tourism, and social protection for study visits and peer learning in other African countries as well as for global knowledge work. The Accelerated Program for Economic Integration (APEI) was created as a platform to enable a small group of reform-minded countries (Mauritius, Seychelles, Mozambique, Zambia and Malawi) to progress on integration issues such as services trade, NTBs, and free movement of labor, and 14 Mauritius played an important catalyzing role in this process. Mauritius’ impact through south-south knowledge exchange should be strengthened further in the remainder of the CPF period by more proactively seeking out opportunities for continuous peer learning, potentially in collaboration with the Mauritius-based Regional Multidisciplinary Center of Excellence. 43. In the case of high-income countries such as Mauritius, financing instruments available to IFC for its support to the private sector during the Covid-19 crisis were limited. While IFC had identified potential transactions in the health sectors, its financing conditions were not considered competitive enough in a country with a robust and well-developed banking system. As a result, the potential investment did not materialize, while IFC provided support to the company in starting and scaling up the production of personal protective equipment through an advisory engagement. Going forward, IFC is considering how to better articulate its value proposition in middle and high-income countries both through its investment instruments as well as advisory services, especially during a crisis response situation. In this context, the WBG can play an important countercyclical role to support middle and high- income countries’ overall development challenges by stimulating market creation and private sector activity, including through mobilization of other financiers. 44. Closer coordination across the WBG has been critical to improving the policy dialogue with the government, especially during a time of crisis, and opening new areas for potential engagement. The Covid-19 crisis has further accentuated the opportunities for regional value chains and trade. As part of the crisis response initiatives, the WBG is exploring future scenarios for the textile industry in the region, including a cluster approach that can be developed by nurturing and strengthening the nascent value chain that has emerged organically and allows for backward as well as forward integration between South Africa, Mozambique, Mauritius and Madagascar. In this context, close coordination between the World Bank and IFC is underway to explore a cluster/regional approach for strengthening the global competitiveness of the Mauritian textile sector. Similarly, and in the spirit of “building back better”, discussions are underway on potential opportunities to shift the country’s energy sector towards more renewable sources, in addition to exploring private sector participation in the waste management sector through PPPs. MIGA, in close collaboration with the Bank and IFC, will explore opportunities to support foreign investors in Mauritius, paying close attention to projects that support job creation and green development. These activities will inform possible further engagement in the next CPF period. V. ADJUSTMENTS TO COUNTRY PARTNERSHIP FRAMEWORK 45. In line with World Bank-wide guidance during the Covid-pandemic, this PLR extends the end of the CPF period from FY21 to FY22. This one-year extension recognizes that counterparts’ attention during this unprecedented crisis is rightfully focused on the country’s short-term recovery needs, and that high levels of uncertainty and fast changing circumstances challenge the development of a medium-term engagement strategy. Work on an SCD update was launched in parallel to the PLR and is expected to provide the analytical foundation for the next CPF. 46. The high-level objectives of the CPF remain well aligned with and relevant to the new government program (2020-24) as well as to the demands of a sustained and inclusive recovery. The government program focuses on inclusiveness and the need to invest in building a competitive, resilient and innovation-driven economy of the future. The disruptions caused by Covid-19 have set back Mauritius’ path towards these goals, and thus its new program re-emphasized the importance of investing into the upgrading of the economy, sustained inclusiveness, and the capacity to plan ahead and respond to crises and future challenges, in line with the three results areas of the CPF (competitiveness, inclusion, and resilience). 15 47. The remainder of the CPF period will still be heavily overshadowed by the impact of Covid-19. As in other countries, the WBG has been closely engaged with authorities in their Covid-19 response measures. Although Mauritius ultimately opted against using IBRD financing for the economic and social response and the purchase of vaccines, knowledge work will continue to assist the country’s efforts to re- energize the economy through continuous improvements in the business environment and in banking supervision, and to maximize the impact of public resources through support to the new Planning Bureau, including under the planned PER. 48. In response to changes in context and experience-to-date, adjustments to the CPF are aimed at enhancing its relevance by dropping select objectives where our engagement has not been effective, adding support for increased planning and crisis response capacity, ensuring achievement of results, and laying groundwork for the next CPF. Given that Government’s FY21/22 budget does not foresee any significant external financing and domestic liquidity has remained strong7, the IBRD program will continue to be delivered through ASA – using RAS to respond to specific requests or needs focusing on support for implementation of client-defined goals and strategies and complemented with Bank budget-funded core ASA. The WBG will, however, remain open and flexible to any request by the Government for additional financing. On the other hand, should Mauritius like to graduate from IBRD, the WBG will assist in that request. 49. The final piece of Bank-funded ASA under this CPF will be a Public Expenditure Review that is expected to provide inputs to several CPF objectives in light of the deteriorated fiscal situation. Recognizing the continuous increase in public debt over the CPF period which was further aggravated by the fiscal impact of Covid-19, the PER will support the need for increased efficiency in public spending. It will be closely aligned to Objective 3 through a dedicated chapter and recommendations on improving the efficiency of education spending and contribute directly to revised Objective 5 by supporting the development of more effective outcome monitoring tools that will inform fiscal planning and implementation. 50. In light of the fiscal impact of Covid-19, new RAS business is expected to decline during the remainder of the CPF period, and a crucial challenge will be to leverage scarce BB with trust fund or other additional resources to maintain a strong policy dialogue. Mauritius is planning to undertake significant fiscal adjustment efforts under the FY21/22 budget, and some of the public agencies that have worked with RASes in the past will likely not be in a position to contract further WBG support in the short term. Others, including the financial regulators, may face less binding financing constraints. In FY20/21, the team successfully leveraged the CEM as a World Bank-funded core diagnostic to raise additional trust fund resources and maintain a broad policy dialogue and analytical support to a range of crucial policy issues for the country’s recovery. The forthcoming PER could play a similar role with an overarching focus on fiscal consolidation that would translate into the development of specific sector recommendations in line with client demand, as well as the development of tools and procedures on the client side to strengthen planning and implementation capacity going forward. BB resources for macroeconomic dialogue have been increased for the remainder of the CPF period to allow for closer analysis and engagement on the difficult fiscal situation. 51. Any new RAS business would be closely aligned to the revised CPF priorities and include intensive implementation support to well-defined reform efforts. While there are currently no new RAS requests in the pipeline, the country team is maintaining an active policy dialogue around the priority areas of the CPF and, in particular, specific policy recommendations from the recent CEM. These include 7 Most Treasury bill auctions are strongly oversubscribed and interest rates on 1 year t-bills are as low as 1 percent. 16 a number of potentially high impact reforms, including to enhance the effectiveness of state support for innovation and develop competitive new export sectors (Focus Area 1), skills development, inclusive education, reforms to parental leave provisions, and more efficient use of social support instruments (Focus Area 2), and strengthening planning and M&E capacity and financial sector supervision (Focus Area 3). RAS business development will be selective and focus on high impact technical assistance to support reform implementation in these areas where desired by government. 52. IFC’s immediate focus given the current environment is to prioritize crisis management and maximize the use of the IFC Covid-19 facility. Also, IFC will seek to support (i) repurposing of light manufacturing operations to support the health sector/medical devices (e.g., local production of masks) in alignment with the GoM’s strategy to foster the emergence of innovative, sustainable and globally competitive SMEs, and (ii) its client banks. IFC’s advisory pipeline includes a proposed corporate governance training program for SMEs in the manufacturing sector. 53. The IFC’s medium-term focus targets: (i) capital market development, financial product diversification and supporting institutions to build and improve capacity with the main focus on investment of funds and banks where it can have a development impact, including further exploring the digitalization of the financial sector to foster financial inclusion as part of Covid-19 crisis response; (ii) promoting climate change initiatives and ways in which Mauritius could move from fossil fuels into more renewable and alternative fuel sources including liquid natural gas imports, and share lessons learnt from other geographies on waste-to-energy projects and explore providing financing under PPP; (iii) infrastructure development through Private Public Partnerships; and (iv) support of a regional approach for light manufacturing, in tandem with Madagascar. It could also support private sector opportunities related to the blue ocean economy as they arise. 54. MIGA will continue to identify opportunities to mobilize cross border investments through its political risk insurance instruments. Mauritius is also one of the countries in sub-Sahara Africa that may benefit from MIGA’s credit enhancement product which would enable MIGA to support high-priority public sector projects. In the short term, MIGA will explore projects in line with the strategic objectives of its Covid-19 Rapid Response Program, in an effort to help mitigate the impact of the pandemic and support recovery. Over the medium term, MIGA will aim to de-risk foreign private investment to support inclusive growth, job creation and green and resilient development. 55. Under Focus Area 1: Increasing Competitiveness, the PLR will drop the second objective due to lack of traction in advancing the Ocean Economy agenda. The recent CEM and the Transforming Strategic Planning for Economic Development RAS, which includes IFC’s contributions to the manufacturing sector, as well as ongoing technical assistance on insolvency, secured transactions and doing business reforms will continue to contribute to the competitiveness agenda. A dedicated chapter of the PER will make recommendations on the efficiency of spending for state support to investments. 56. Under Focus Area 2: Fostering Inclusion, the program will drop Objective 4 given the limited progress of pension reform efforts although concerns about poor targeting of this universal benefit and its unsustainable fiscal impact persist. Mauritius has seen an overall increase in social spending during the CPF period, and while these measures, including the basic pension, have been effective in reducing poverty and inequality, the efficiency of spending varies greatly from one instrument to another. The impact of Covid-19 has added to the urgency of a more cost efficient and activating approach to social support by reducing fiscal space and increasing the number of those in need. The proposed PER will examine the efficiency of government’s spending on social assistance and offer recommendations. 17 57. Under Focus Area 3: Bolstering Resilience and Sustainability, priorities will shift from strengthening the management of water supply to improving government capacity for planning and crisis response. As noted above, the centerpiece of the envisaged reform to water management – the introduction of a private operator for the Central Water Authority - does not currently appear to have political support. The related objective will thus be dropped. A revised objective will focus on improved public sector capacity for planning and crisis response in line with Government’s national program priorities (2020-2024). As discussed in previous sections, Mauritius is considered a country with overall high institutional quality and government effectiveness. However, recent lack of progress in key reform areas can frequently be attributed to a lack of policy coherence and planning capacity for complex multi- stakeholder reforms, as well as shortcomings in implementation capacity and monitoring and evaluation (World Bank, 2021). This shortcoming is also affecting Mauritius’ capacity to confront key challenges such as the recovery from Covid-19 and the adaptation to climate change and other environmental threats. Mindful of these challenges, the Government of Mauritius has recently taken the decision to launch a new Economic Research and Planning Bureau at the Ministry of Finance that would bundle knowledge work on key medium- and long-term challenges and become the center piece of an agile planning system to ensure the development and implementation of effective multi-agency responses to medium- and long- term challenges. The key results indicator under this objective measures the integration of forward- looking strategic analysis and planning goals in the FY22-23 budget through the work of the Bureau as a result of its effective operationalization. The ultimate outcome is expected to be an improvement in the effectiveness of a number of policy areas that are of direct relevance for the well-being and livelihoods of the poor and bottom 40, including social support, skills development, climate change response and disaster management, and state support to the economy. The proposed PER will be elaborated and delivered in close cooperation with the Bureau, supporting its staff in the development of relevant planning and budgeting tools, while the placement of an advisor through the Africa Chief Economist’s initiative will support its operationalization. 58. The PLR revises the results framework to more completely and accurately capture the achievements of the CPF program. The revised framework: (i) drops the original Objectives 2 and 4; (ii) replaces Objective 5 with a revised objective related to enhanced planning and crisis response capacity and a corresponding indicator to measure its achievement; (iii) adjusts target values to reflect the impact of Covid-19 and extend these until the new CPF completion date; and (iv) identifies data sources. See Annex 2 for a revised results framework, Annex 3 for a summary of the adjustments made to the original results matrix, and Annex 4 for a summary of progress toward CPF objectives. VI. RISKS TO CPF PROGRAM 59. The overall risk assessment has been elevated from low to moderate in light of emerging areas of relative weakness amplified by impacts of the Covid-19 pandemic. The economic and institutional risks identified by the CPF remain relevant without significant changes in most areas, with the exception of macroeconomic risks and institutional capacity for implementation and sustainability. With WBG engagement through ASA alone, the scope for mitigating these risks is limited. 60. Macro-economic risks have increased from moderate to substantial in light of pre-Covid trends, the impact of the pandemic, and high levels of central bank financing. Persistent deficits before the pandemic and building fiscal pressures, in particular from rising pension expenditure, raise questions about the medium-term fiscal outlook. The fiscal expansion in response to Covid-19, while justified, further elevated debt levels and created new contingent liabilities due to the heavy involvement of the state, including the Central Bank, in the economy. Large non-refundable transfers from the Central Bank to the government also pose risks for the effectiveness of monetary policy going forward. Mauritius also 18 remains highly vulnerable to a further prolongation of the Covid pandemic given its tourism dependence. While the external reserve position remains comfortable, additional external risks relate to the dependence of the balance of payment on potentially volatile financial flows related to the offshore sector in light of persistently large trade deficits. Close and collaborative monitoring of the macroeconomy with the IMF will continue. The immediate impact of the fiscal situation on the program will likely be a temporary decline in new RAS business. Going forward, increased emphasis on fiscal consolidation is expected, and the planned PER will be an opportunity to engage on this issue. 61. As key pending reforms are becoming increasingly complex and multi-sectoral, shortcomings in institutional capacity for implementation and sustainability become a substantial risk. While Mauritius has a successful track record as a reform-oriented country and most sectoral institutions are effective, reforms are needed in more complex policy areas that require complex, multi-sectoral solutions. This includes the development of skills in line with labor market needs, reform of social support programs, innovation support, management of natural resources and climate change adaptation, as well as the design of successful public private partnerships (World Bank, 2021). Managing these risks will require renewed attention to policy coherence and implementation capacity across government, as supported by the new CPF objective on Improved Public Sector Effectiveness for Planning and Crisis Response. Table 1: Revised Systematic Operations Risk-rating Tool Risk Categories CPF Rating PLR Rating (FY17) (FY21) 1. Political and governance Moderate Moderate 2. Macroeconomic Moderate Substantial 3. Sector strategies and policies Low Low 4. Technical design of project or program Low Low 5. Institutional capacity for implementation and sustainability Moderate Substantial 6. Fiduciary Low Low 7. Environment and social Low Low 8. Stakeholders Moderate Moderate Overall Low Moderate 19 REFERENCES Ranzani, Marco. 2019. The Effects of Taxes and Social Spending on the Distribution of Household Income in Mauritius. World Bank, Washington DC. World Bank. 2021. Through the Eye of a Perfect Storm - Mauritius Country Economic Memorandum. Washington DC 20 Annex 1: Mauritius CPF Advisory and Lending Program Proposed, Actual and Planned (FY17-22) Proposed in CPF Status Actual (FY17-21); Planned (FY22) ASA Building the Ocean Economy in Mauritius (ASA) Delivered FY17 Building the Ocean Economy (P155091) Innovation in Data-Driven Development (TA) Delivered FY17 Data Driven Development and ICT Policy TA (P161878) Technical Support for Implementation of Nine-Years Delivered FY21 Education RAS (P162927) Continuous Basic Education Schooling Reform (RAS) Achieving greater pay equity between men and women Delivered FY20 Youth and Women Inclusion and Using Data for Decision (ASA) Making (P171809) Reducing Skills Mismatches in the Mauritius Labor Delivered FY21 Topic covered extensively in the 2021 CEM Market (ASA) Social Protection Policy Dialogue (TA) Delivered FY16-21 Internal Order budgets were used to provide technical inputs and just-in-time support on social protection reform throughout the CPF period Mauritius Statistical Capacity Building Project (TA) Delivered FY17 Mauritius Statistical Capacity Building Project IPF (USD.35 m) (P163248) Water Sector Reform (RAS) Delivered FY17 Support to Potable Water Sector Reform and PPP for the National Water Authority CWA (P158935) Delivered FY20 Potable Water Sector PPP and Reform Project (P164368) FSAP Follow-up (TA) Delivered FY17 FSAP Follow-up (P160871) Money Laundering and Terrorism Financing Risks Delivered FY20 Money Laundering and Terrorism Financing Risks Assessment Assessment (RAS) (P162592) Added and Fostering Economic Mobility and Promoting Youth delivered FY18 Employment (P164706) Added and Promoting sustainable economic growth through equity- delivered FY19 friendly and business-enabling policies (P168012) Added and Productivity Dialogue (P169786) delivered FY19 Added and Strengthening Regional Agriculture Imports from APEI delivered FY19 Countries (P168226) Added and Support for Africa Strategy Bilateral Program (P171883) delivered FY20 Added and Review of the Sugar Cane Sector (P171987) delivered FY21 Added and Transforming Strategic Planning for Economic Development Delivered FY21 RAS (P171558) Added and Country Economic Memorandum (P171584) Delivered FY21 Added and Productivity Study and report (P173238) Ongoing (FY21) Added and TA on insolvency, secured transactions and doing business Ongoing (FY22) reforms (P170028) Added and Enhancing Supervisory Capacity of BOM (P165248) Ongoing (FY23) Planned (FY22) Public Expenditure Review (P176975) Lending Southwest Indian Ocean Fisheries 4 IPF (USD10 m) Dropped APEI Regional Operation 2 DPO (USD15 m) Dropped 21 Annex 2. Updated CPF Results Matrix Focus Area 1: Increasing Competitiveness Further expansion in trade and investment is crucial for achieving Mauritius’ goals for growth and poverty reduction. The SCD highlights technology absorption and trade facilitation among the most important challenges to be addressed. Mauritius’ innovation system compares poorly with that of other middle-income countries, undermining its ability to attract additional FDI and, more importantly, to absorb global knowledge and technology. To address this, a better institutional framework and incentives for innovation are needed. In trade, expanding trade and investment and deepening regional integration by reducing non-tariff barriers and opening up trade in services will be critical to offset the impact of reduced preferential trade access. The ICT sector has emerged as a major pillar of the economy, translating into substantial employment and firm creation. However, a recent slowdown in sector growth points to the need for additional measures to strengthen the enabling environment. Objective 1: Improved Environment for Regional Trade and Investment Intervention Logic. Mauritius’ strategy for expanding employment in higher value-added sectors emphasizes greater trade and investment, particularly with Africa. The World Bank Group program will seek to address trade barriers in Mauritius in concert with a set of like-minded African countries through the Accelerated Program of Economic Integration (APEI), a multilateral program of coordinated trade policy reforms. The Bank Group program of ASAs and TA, will continue to support reforms to significantly improve the trading environment by reducing non-tariff barriers and constraints to labor and investor mobility. IFC investments/advisory activities and business environment reforms and MIGA guarantees will complement these activities. In addition to addressing the overall business environment, there is a need to focus on improving the ICT sector, an important contributor to economic growth in Mauritius, but which has been decelerating recent years. The CPF program will feature technical assistance to support the Government in identifying and implementing key reforms in these areas. Objective Indicators WBG Program OI 1.1 Number of business people entering Mauritius ASA Program Baseline (2013): 37,410 Completed Target (2019): 41,150 Data Driven Development and ICT TA (FY17) Source: Statistics Mauritius Strengthening Regional Agriculture for APEI Countries Already achieved for regional trade (FY19) Support for Mauritius-Africa Strategy Bilateral OI 1.2 Elimination of non-tariff barriers (NTB) Program (FY19) Baseline: n/a Transforming Strategic Planning for economic Target: 10 NTBs removed development (FY21) Source: APEI Regional DPO ICR/ICRR Already achieved Country Economic Memorandum (FY21) OI 1.3 Increased capacity to develop policies in digital Ongoing governance TA on Insolvency, secured transactions and doing Source: Closing summary of Data Driven Development business (FY22) and ICT Policy TA (P161878) Already achieved Lending Program Completed APEI DPO I 22 Focus Area 2: Fostering Inclusion The recent experience and the SCD show clearly the growing challenge of increasing inequality and vulnerability and the consequent decrease in the poverty reduction impact of growth. The most vulnerable struggle to fully reap the benefits of economic growth because not enough employment is created, and many workers lack adequate skills for today’s labor market. Poverty is concentrated among those households whose head had less than secondary education. While educational opportunities have improved significantly, Mauritius still lags behind other middle-income countries in terms of learning achievements. Objective 2: Increased Capacity to Implement Education Reforms Intervention Logic. The Government launched an ambitious basic education reform agenda in January 2017 to address weaknesses in the education system. Given the scope and complexity of the reform, critical challenges relate to its implementation. However, because the RAS Legal Agreement was finalized and signed only in September 2017, the government went ahead to design the plan for reform implementation and had already started implementation when the World Bank team began its work in late 2017. Under the circumstances, the World Bank Group’s capacity building role was adjusted whereby the government would draw on its expertise and support in areas required to advance the reforms. The RAS Agreement identified four specific areas: A. School Accountability; B. Early Support Program and Early Digital Learning Program; C. Extended Curriculum; and D. Professional Development of Teachers. In each area, the government will be drawing on the World Bank Group’s advice on international good practice and its technical expertise by working closely together to prepare key policy and operational documents and mid-term evaluations of priority programs under the reform. This method of collaboration is consistent with international best practice in capacity development. Objective Indicators WBG Program OI 2 Government capacity to implement the Nine ASA Program Years of Continuous Basic Education reform in line Completed with international good practice is strengthened Youth and Women Inclusion and Using Data for Baseline (2017): Implementation began in January Decision-making 2017; plans in line with international good Education RAS practice. Transforming Strategic Planning for economic Target (2022): Adjustments to implementation development made in response to evaluation findings and Country Economic Memorandum international good practice. Source: Closing summary of Education RAS (P162927) Planned Public Expenditure Review Focus Area 3: Bolstering Resilience and Sustainability While the trajectory in terms of growth over the last decade has been broadly positive, the Covid-19 impact (reduced GDP growth in 2020) and other external risks will affect growth and poverty reduction in the near term. Also, significant policy and institutional reforms are necessary to ensure that Mauritius is able to sustain its economic status and begin to address the growing challenges related to shared prosperity. The recent work/experience and the SCD, indicate infrastructure, financial sector, and health as areas where there is a need to undertake important reforms to avoid problems which could threaten growth and stability. Objective 3: Improved Public Sector Effectiveness for Planning and Crisis Response Intervention Logic. Although Mauritius is considered a country with overall high institutional quality and government effectiveness, recent lack of progress in key reform areas can be attributed to a lack of policy coherence and planning capacity for complex multi-stakeholder reforms, as well as shortcomings in implementation and monitoring and evaluation capacity. This shortcoming is also 23 affecting Mauritius’ capacity to confront key challenges such as its recovery from Covid-19 and adaption to climate change and other environmental threats. Mauritius is among the countries most at risk from natural disasters, including cyclones and flooding, and the current situation will be compounded by climate change. Efforts will focus on making the recently created Economic Research and Planning Bureau at the Ministry of Finance fully functional. Objective Indicators WBG Program OI 3 The FY22/23 budget integrates forward looking ASA Program strategic analysis and planning goals through the Completed work of the Economic Research and Planning Bureau Data Driven Development and ICT Policy Technical Assistance Baseline (21/22): Not the case Transforming Strategic Planning for Economic Development RAS Target (2022): Budget reflects inputs from Country Economic Memorandum Bureau for strategic analysis and planning Planned Source: Ministry of Finance, Economic Planning and Development Public Expenditure Review Objective 4: Build Capacity to Implement Strengthened Financial Sector Governance Intervention Logic. Given the critical importance of the financial sector to Mauritius’ continued growth and development, ensuring its continued stability is essential. The Mauritian financial sector scrutiny from FATF, European Union, and global anti-tax base and anti-money laundering initiatives could have serious implications for investor (including offshore) trust and confidence in use of Mauritius’ financial sector institutions. These developments in the sector have prompted a reassessment of the adequacy of the financial stability framework for a country with a large and open financial sector that has critical linkages to the offshore sector and thus the need to put in place stronger regulatory and supervisory arrangements as well as an effective framework to manage instances of institutional and system-wide stress or instability. The WBG program will aim to assist the Government in ensuring continued financial sector resilience, emphasize transparency and controls over financial transactions, and develop appropriate money laundering legislation. Planned TA will support the Government, the Bank of Mauritius (BoM) and the Financial Services Commission to implement the key recommendations from the FATF, EU, FSAP, especially as they relate to supervision and oversight of financial conglomerates, managing risks related to the Global Business Sector, as well as financial inclusion. Technical assistance will be closely coordinated with the International Monetary Fund. Objective Indicators WBG Program OI 4.1 The BoM migrates to a forward looking, risk ASA Program sensitive supervisory approach for the banking Completed system by 2022. FSAP Follow-up TA Money Laundering and Terrorism Financing Risks Source: Closing summary of Enhancing Supervisory Assessment Capacity of BOM (P165248) Ongoing OI 4.2 Payments regulations are adopted to facilitate Enhancing Supervisory Capacity of BoM access to new financial products and services to TA on insolvency, secured transactions and doing households and small business retailers, including business reforms mobile money. Source: Closing summary of Enhancing Supervisory Capacity of BOM (P165248) 24 Annex 3. Matrix of Key Changes to Original CPF Results Matrix Updated Original CPF Results Matrix Comments/justification CPF RM Focus Area 1: Increasing Competitiveness Objective 1: Improved Environment for Regional Trade Unchanged and Investment OI 1.1 Number of businesspeople entering Mauritius Unchanged Achieved OI 1.2 Elimination of non-tariff barriers Unchanged Achieved OI 1.3 Increased capacity to develop policies in Unchanged On track digital governance Objective 2: Build the Knowledge Base for Unlocking the Dropped Potential of the Ocean Economy Focus Area 2: Fostering Inclusion Objective 3: Increased Capacity to Implement Education Unchanged Now Objective 2. Reforms OI 3 Government capacity to implement NYCBE Unchanged Now OI 2 reform in line with international good practice is strengthened Objective 4: Strengthen Government Capacity to Develop Dropped Policy Options to Increase the Sustainability of Pensions Programs Focus Area 3: Bolstering Resilience and Sustainability Objective 5 (old): Strengthened Management of Water Dropped Supply Objective 3: Improved Public Sector Effectiveness for Added New Objective 3 Planning and Crisis Management OI 5 Successful selection of a Central Water Deleted (old) Authority Private Operator under a PPP arrangement by end 2018. OI 3 The FY22/23 budget integrates forward Added The Bureau is intended to become (new) looking strategic analysis and planning goals the center piece of an agile planning through the work of the Economic Research system, ensuring alignment of policy and Planning Bureau initiatives with high level development objectives, as well as tracking implementation. Objective 6: Build Capacity to Implement Strengthened Unchanged Now Objective 4 Financial Sector Governance OI 6.1 The BoM migrates to a forward looking, risk Revised Now OI 4.1. Target year extended to sensitive supervisory approach for the 2022 due to implementation delays. banking system by 2022. OI 6.2 Payments regulations are adopted to facilitate Unchanged Now OI 4.2. access to new financial products and services to households and small business retailers, including mobile money. 25 Annex 4. Matrix Summarizing Progress towards CPF Objectives Focus Area 1: Increasing Competitiveness Objective 1: Improved Environment for Regional Trade and Investment CPF Objective indicators Supplementary Progress Progress Update WBG Program Indicators OI 1.1: Number of Annual Technical OI 1.1: Achieved Financing business people entering Workshops among APEI The APEI Regional DPO APEI DPO/P4R Mauritius partners countries aimed to promote trade in Series Baseline: 37,410 (2013) convened with WBG services in part by facilitating Target: 41,150 (2021) Technical Support. the movement of IFC SBM Ltd (+10%) Achieved. Envisioned in the professionals across borders IFC Trade Finance CPF as a programmatic by easing regulations on IFC Adenia II & Actual: 48,615 (2017) series of two DPOs, the business visas and work Adenia III 50,543 (2019) Accelerated Program for permits. Following the IFC CDC Pragati Economic Integration signing of a Memorandum of Sale Source: Statistics Regional DPO was to Understanding on the IFC Helio Towers Mauritius improve the policy movement of business environment for trade in people across borders – a ASA five APEI countries (Malawi, prior action under the PPP Reform TA Mauritius, Mozambique, operation, Mauritius saw an IFC Advisory Seychelles and Zambia) by: initial 28 percent increase in Services (i) removing barriers to the number of business ICT Sector TA trade; (ii) promoting trade people entering the country in services; and (iii) (but a small decline in MIGA guarantees: enhancing measures to business people entering Eastern and facilitate trade. Only two from APEI countries) by Southern African countries (Mauritius and 2017, significantly exceeding Trade and Seychelles) declared the the project target value of 5 Development Bank first operation effective percent. The number (FY20) (June 2016). Since only continued to increase Absa Group Central Mauritius met the readiness totaling 50,543 in 2019, Bank Mandatory criteria for and chose to before Covid-related border Reserves Coverage participate in the planned closures. (FY 19); second DPO operation, it was cancelled in February 2018. According to the ICR for the first operation, several technical meetings were held in FY17, and following the project’s completion efforts were underway to strengthen the APEI coordination mechanism, and interactions with the Bank to identify a balanced mix of interventions to advance APEI objectives based on Annual Meeting discussions were on-going supported by key Bank-financed ASA. 26 TA for identification of OI 1.2: Elimination of non- NTBs that could be OI 1.2: Achieved tariff barriers (NTB) removed delivered. Supported by the first APEI Baseline: n/a Achieved. Regional DPO, import and Target: 10 NTBs export requirements were removed Regulatory assessment of removed on 20 products. Actual (2017): 20 services trade and Targets related to increasing NTBs removed investment in the context the transparency of of COMESA commitments procedures and reducing Source: APEI Regional DPO in the four priority sectors inspections were also met. ICR/ICRR (tourism, communication, finance, transport) delivered. Off track. The regulatory assessment was to be undertaken as part of the second APEI DPO which was cancelled. Capacity building and OI 1.3: Increased capacity policy assistance delivered OI 1.3: Achieved. to develop policies in in the area of Digital Progress on digital digital governance Governance and Data- governance, supported by Driven Development: Data Driven Development a) Technical assistance for and ICT Policy TA, has made drafting of a transparent trade-related requirements and Open Government Data more accessible. policy. b) Technical assistance to establish Open Data initiative and governance structure. c) 75 government officials trained in sustaining a government-wide Open Data initiative. Achieved. Objective 2: Build the Knowledge Base for Unlocking the Potential of the Ocean Economy CPF Objective indicators Supplementary Progress Progress Update WBG Program Indicators OI 2: Enhanced Regional Management of key OI 2: Off track Financing Cooperation in fisheries under sustainable Under the SWIOFish 2 Southwest Indian Management of Fisheries management plans project, declared effective in Ocean Increased compliance by Off track. (see below) 2018, the IOTC compliance Fisheries/Blue Mauritius with IOTC rate for Mauritius increased Economic resolutions Marine Spatial Plan slightly from 81 percent to Investment Baseline (FY15): 81 prepared 82 percent. The 2020 Operation percent Off track. In December compliance rate is not yet Target (FY21): 86 2016, Cabinet agreed to the available. The schedule of ASA percent development of a Marine IOTC meetings has been Unlocking the Actual (2019): 82 Spatial Plan for Mauritius. interrupted by the Covid-19 Potential of the percent The process was initiated in pandemic. The next Blue Economy 2017 and a number of Compliance Committee 27 Source: IOTC coordination committee meeting is scheduled for Note: 2020 compliance meetings were held. Under end-FY21 during which the rate will be reported in the MSP process, several 2020 compliance data will be May 2021. studies where undertaken, discussed. The lending including on offshore operation on South West aquaculture, and several Indian Ocean Fisheries/Blue working groups were Economy designed to further created. However, the MSP support achievement of this process in Mauritius seems indicator was canceled due to be a tool to respond to to a lack of government specific questions, rather interest. than a comprehensive planning exercise of the coasts and waters around Mauritius. Focus Area 2: Fostering Inclusion Objective 3: Increased Capacity to Implement Education Reforms CPF Objective indicators Supplementary Progress Progress Update WBG Program Indicators OI 3: Government Detailed implementation OI 3: Achieved. ASA capacity to implement the plans for the Nine Years With a delay in the signing of Education Sector Nine Years of Continuous Reform program are the RAS legal agreement RAS Basic Education reform in developed. until September 2017, line with international Achieved. Government proceeded to IFC innovations in good practice is design the plan for reform education strengthened. Effective monitoring and implementation on its own evaluation tools are and had already started Baseline: developed and delivered implementing this plan on its Implementation began Achieved. RAS outputs, own when the World Bank in January 2017; plans including evaluations of the team began its work in late were in line with early learning and digital 2017. The WBG’s capacity international good learning programs, were building role was thus practice. delivered on time, each of adjusted so that government them produced through would draw on WBG Target: Adjustments to active engagement with the expertise and support in implementation made relevant Mauritian areas required to advance in response to government counterparts. reforms. In each of the four evaluation findings and These outputs are helping areas identified in the RAS international good to strengthen the agreement (social practice. government’s capacity for accountability, early support managing a dynamic program and early digital Actual (2021): process for education learning program, extended Adjustments continue reform implementation and curriculum, and professional to be made. adjustment. development of teachers), government is drawing on WBG advice on international good practice and technical expertise by working closely to prepare key policy and operational documents and mid-term evaluations of priority programs under the 28 reform. This approach is consistent with international best practice in capacity development. The outputs in each priority area produced with active engagement of counterparts are helping strengthen the government’s capacity. Objective 4: Strengthen Government Capacity to Develop Policy Options to Increase the Sustainability of Pensions Programs CPF Objective indicators Supplementary Progress Progress Update WBG Program Indicators OI 4: The High-Level Updated fiscal projections OI 4: Partially on track. ASA Committee on Pensions for the Basic Retirement The Bank has supported Pensions TA Reform has released a Pension are developed. pension reform through reform proposal to Achieved. An Options Policy ongoing dialogue and just-in- address financing Note on the possibilities for time knowledge products. sustainability of public reforming BRP included The focus of ASA has pensions. updated fiscal projections. broadened to include: (i) a study on the Fiscal Impact of Updated actuarial Aging which in addition to projections and reform pensions covered broader scenarios for the National social protection measures Pension Fund are as well as education and developed. health spending; and (ii) an Off track. National Pension Options Policy Note on the Fund abolished in 2020. possibilities for reforming BRP with updated projections. In fiscal year 2020/21 a pension reform was undertaken which only partially addresses the sustainability issues in the pension system Focus Area 3: Bolstering Resilience and Sustainability Objective 5: Strengthened Management of Water Supply CPF Objective indicators Supplementary Progress Progress Update WBG Program Indicators OI 5: Successful selection Development and adoption OI 5: Off track ASA of a Central Water of a Water Sector Reform The IFC mandate to carry out Mauritius Water Authority Private Road Map by 2018 this selection expired as a Sector TA (RAS) Operator under a PPP Off track. Although a result of GoM’s priorities and IFC climate grant arrangement by end reform roadmap was delay in approval to proceed Global 2018. accepted by the responsible with this transaction. Infrastructure Fund Ministry, it has not been grant adopted or implemented IFC Transactional and GoM has not carried Advisory Services this agenda forward. 29 Objective 6: Build Capacity to Implement Strengthened Financial Sector Governance CPF Objective indicators Supplementary Progress Progress Update WBG Program Indicators OI 6.1: The BoM migrates Revised methodology for OI 6.1: On track ASA to a forward looking, risk assessing bank risk is With support under a RAS, FSAP Follow up TA sensitive supervisory developed. with significant progress has Strengthening approach for the banking Achieved. Supported under been made towards Insurance Sector system by 2019. the RAS, the RBS consists of adopting a risk-sensitive Regulation various modules that approach to World Bank NLTA address each category of supervision. Stress tests on banking risk – credit, the banking sector were liquidity, market, performed (before the operational, AML, capital Moody’s downgrade); results of recent stress tests are adequacy, Pillar 2 and forthcoming. governance. So far, the methodology for all modules have been developed and pilots have been carried out for credit, liquidity, and AML risks, for which user manuals have also been developed. The manuals for the remaining modules will be ready by August, after which the remaining pilots will be carried out. Once data from the various pilots has been analyzed, the methodology/manual may have to be fine-tuned and followed by a full pilot of the whole RBS as from March 2022. OI 6.2: Payments ToR, institutional set up, OI 6.2: On track regulations are adopted and governance of the The Bank of Mauritius issued to facilitate access to new Payments Council are a new Payments Act in 2018. financial products and developed. The guidelines to services to households Off track. The payments operationalize this new law, and small business council is no longer however, have not yet been retailers, including mobile considered relevant. submitted for approval by money. the BoM Board. 30 Annex 5. Selected Macroeconomic Indicators Output, prices and exchange rate 2018 2019 2020 2021p 2022p 2023p Real GDP growth 3.8 3.0 -14.9 4.8 6.8 4.0 Inflation (period average) 3.2 0.5 2.5 2.3 3.7 3.5 Exchange rate (MRU / USD), period avg 33.9 35.5 39.3 .. .. .. Money and Credit 2018 2019 2020 2021p 2022p 2023p Broad Money (M3) growth 6.3 8.5 16.9 -1.1 2.9 0.1 Credit to private sector (% of GDP) 78.3 80.3 96 95.3 90.7 88.6 Key repo rate (end of period) 3.5 3.35 1.85 .. .. .. NPLs (% of total loans, end of period) 6.5 4.9 6.1 .. .. .. External Sector 2018 2019 2020 2021p 2022p 2023p Current account balance (% of GDP) -3.9 -5.1 -12.7 -15.6 -6.8 -6.6 Goods trade (net, % of GDP) -21.3 -21.9 -19.6 -19.2 -18.1 -19.2 Services trade (net, % of GDP) 7.6 5.9 -0.1 -4.2 2.4 3.5 Income (net, % of GDP) 12.6 13.3 10.1 10.8 11.4 11.5 Transfers (net, % of GDP) -2.9 -2.7 -3 -3.1 -2.4 -2.4 Gross int. reserves (months of imports) 10.2 12.3 16.8 11.1 9.7 9.3 Central Government Budget FY 2018/19 FY2019/20 FY2020/21 FY2021/22 FY2022/23 FY2023/24 Revenue and grants (% GDP) 22.1 22.7 21.8 23.2 23.9 24.2 of which tax revenue 20.0 20.1 18.7 19.9 20.3 20.7 Current Spending 22.8 29.5 32.2 28.1 26.7 28.1 Capital spending (budgetary) 2.5 5.0 1.8 1.8 1.7 1.7 Budget balance -3.2 -11.8 -12.2 -6.7 -4.5 -5.6 Net lending and financial transactions -1.6 -1.9 -7.8 -1.7 -1.1 -1.1 Overall borrowing requirement 4.8 13.1 -20.0 -8.4 -5.6 -6.7 Public sector debt (% of GDP) 65.4 83.4 92.0 92.6 91.4 92.9 Sources: Ministry of Finance, Economic Planning and Development, IMF, World Bank Staff estimates, Statistics Mauritius, Bank of Mauritius. 31 Annex 6. Alignment of ASA program to CPF objectives FA 3: FA1: Increasing FA 2: Fostering Bolstering competitiveness Inclusion Resilience and Sustainability P number Title GP Status FY Macroeconomics, Trade and Public Expenditure Review Investment planned 22 P165248 Enhancing Supervisory Capacity of BOM Finance, Competitiveness and ongoing Innovation 23 P170028 TA on insolvency, secured transactions and doing business reforms Finance, Competitiveness and ongoing Innovation 22 P173238 Productivity Study and report DEC done 21 P171584 Country Economic Memorandum Macroeconomics, Trade and done Investment 21 P171558 Transforming Strategic Planning for Economic Development RAS Governance done 21 P171987 Review of the Sugar Cane Sector Agriculture and Food done 21 P162927 Education RAS Education done 21 P164368 Potable Water Sector PPP and Reform Project Water done 20 P171809 Youth and Women Inclusion and Using Data for Decision Making Poverty and Equity done 20 P171883 Support for Africa Strategy Bilateral Program Finance, Competitiveness and done Innovation 20 P162592 Money Laundering and Terrorism Financing Risks Assessment Finance, Competitiveness and done Innovation 20 P168226 Strengthening Regional Agriculture Imports from APEI Countries Macroeconomics, Trade and done Investment 19 P169786 Productivity dialogue Macroeconomics, Trade and done Investment 19 P168012 Promoting sustainable economic growth through equity-friendly Poverty and Equity done and business-enabling policies 19 P164706 Fostering Economic Mobility and Promoting Youth Employment Poverty and Equity done 18 P160871 FSAP Follow-up TA Finance, Competitiveness and done Innovation 17 P155091 Building the Ocean Economy Environment, Natural Resources & done Blue Economy 17 P161878 Data-Driven Development and ICT Policy Technical Assistance Transport done 17 P158935 Support to Potable Water Sector Reform and PPP for the National Water done Water Authority CWA 17 32 Annex 7. Map of Mauritius 33