Document of The World Bank FOR OFFICIAL USE ONLY Report No. 72496-MU INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROGRAM DOCUMENT FOR A PROPOSED LOAN IN THE AMOUNT OF US$20 MILLION TO THE REPUBLIC OF MAURITIUS FOR A SECOND PUBLIC SECTOR PERFORMANCE DEVELOPMENT POLICY LOAN February 25, 2013 Poverty Reduction and Economic Management Department AFCS4 Country Management Unit Africa Region 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 authorization. MAURITIUS - GOVERNMENT FISCAL YEAR January 1 - December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of January 31, 2013) Currency Unit = Mauritius Rupee US$1.00 = Rs. 30.30 Weights and Measures Metric System ABBREVIATIONS AND ACRONYMS AfDB African Development Bank AFD Agence Franqaise de Developpement (French Development Agency) AFRITAC Africa Regional Technical Assistance Center South AFT Aid for Trade AMB Agricultural Marketing Board BOI Board of Investment BoM Bank of Mauritius BPO Business process outsourcing CMS Customs management system CPE Certificate of Primary Education CPI Current Price Index CPS Country Partnership Strategy DDO Deferred draw down option DPL Development policy loan DSA Debt sustainability analysis ESS Education Sector Strategy ESTP Economic and Social Transformation Plan EU European Union FDI Foreign direct investment GDP Gross domestic product HBS Household Budget Survey HPC Housing and Population Census HRMIS Human Resources Management Information System IBRD International Bank for Reconstruction and Development ICA Investment Climate Assessment ICAC Independent Commission Against Corruption ICT Information and communications technology IMF International Monetary Fund IT Information Technology JEC Joint Economic Council KPI Key performance indicators MCSAR Ministry of Civil Service and Administrative Reforms MFN Most Favored Nation MID Maurice Ile Durable (Sustainable Mauritius) MNF Moving the Nation Forward MNS Mauritius Network Services Limited MoBECC Ministry of Business, Enterprise, and Cooperatives MoEHR Ministry of Education and Human Resources MoFED Ministry of Finance and Economic Development MoU Memorandum of Understanding MoSIEE Ministry of Social Integration and Economic Empowerment MoSS Ministry of Social Security, National Solidarity, and Reform Institutions MRA Mauritius Revenue Authority NDS National Development Strategy NEF National Empowerment Foundation NTBs Non-tariff barriers NTC National Transport Corporation NTMs Non-tariff measures OPSG Office of Public Sector Governance PBB Program-based budgeting PDMA Public Debt Management Act PEFA Public Expenditure and Financial Accountability Assessment PFM Public financial management PIMS Parastatals Information Management System PMT Proxy means test PPP Public-private partnership PRC Permit Review Committee PSC Private sector competitiveness PSIP Public Sector Investment Plan PSIA Poverty and Social Impact Analysis SADC Southern African Development Community SMEs Small and medium-sized enterprises SOEs State-owned enterprises SRM Social Register of Mauritius TVET Technical and vocational education and training UNDP United Nations Development Program ZEP Zones d'Education Prioritaires (Priority Education Zones) Vice President: Makhtar Diop Country Director: Haleh Z. Bridi Sector Director: Marcelo Giugale Sector Manager: John Panzer Task Team Leaders: Rafael Mufioz Moreno/Will Wiseman ii REPUBLIC OF MAURITIUS SECOND PUBLIC SECTOR PERFORMANCE DEVELOPMENT POLICY LOAN TABLE OF CONTENTS LOAN PROGRAM SUMMARY ................................................................................................. v PROGRAM DATA SHEET ................................................................................................... vii I. INTRODUCTION .......................................................................................................... 1 II. COUNTRY CONTEXT ............................................................................................ 3 A. Recent Developments And Macroeconomic Policy Framework in Mauritius................ 4 B. Macroeconomic Outlook and Debt Sustainability ........................... 6 III. THE GOVERNMENT'S PROGRAM AND PARTICIPATORY PROCESSES ... 10 A. Government Program ......................................... ..... 10 Pillar 1: Prosperity for All................... ...................... ..... 10 Pillar 2: Enhanced Connectivity.................................... 12 Pillar 3: Empowering People............................................. 13 Pillars 4 and 5: Cohesive Society and Strong Nation ...................... ...... 14 Pillars 6: Sustainability................................................. 15 B. Public Budget Consultative Process and Transparency ................. ...... 16 IV. THE BANK'S SUPPORT FOR THE GOVERNMENT'S REFORM PROGRAM17 A. Link to the Country Partnership Strategy ........................ ......... 17 B. Collaboration with the IMF and other Donors ........................ ..... 17 C. Relationship to other World Bank Operations ........................ ..... 19 D. Lessons Learned .......................................... ....... 19 E. Analytical Underpinnings............................................ 20 V. THE PUBLIC SECTOR PERFORMANCE DEVELOPMENT POLICY LOAN. 22 A. Operation Description ..................... ................... 22 B. Policy Areas .................................................... 26 B. 1 Strengthening Services to Support and Empower the Most Vulnerable.. ............. 26 B.2 Streamlining Trade Regulation and Processes.............................. 33 B.3 Improving Human Resource Management in the Civil Service and the Monitoring of SOE Performance.................................................... 38 VI. OPERATION IMPLEMENTATION ...................................................................... 47 A. Poverty And Social Impact............... .................... ...... 47 B. Environmental Aspects................. ...................... ..... 49 C. Implementation, Monitoring, and Evaluation .............................. 49 D. Fiduciary Aspects ........................................... ..... 49 E. Risks And Risk Mitigation ..................................... ..... 50 iii ANNEXES Annex 1: Operation Policy Matrix ...............................................53 Annex 2: Letter of Development Policy............................ ...................57 Annex 3: IMF Assessment Letter........................ ........................65 Annex 4: Statement of Loans and Credits........................ ..................69 Annex 5: Country at a Glance...................................................70 Annex 6: Map of Mauritius (IBRD 33446)......................................... 72 TABLES Table 1: Exports and Tourist Arrivals, 2011 and 2012 ........................... ...... 5 Table 2: Selected Economic Indicators and Projections, 2009-2015 ..........7.........7 Table 3: Evolution of Proposed Triggers to Prior Actions for DPL2 ................. ..... 24 Table 4: Public Enterprise Debt (Rs millions unless otherwise indicated) ............. ..... 43 Table 5: The National Transport Corporation: Projected Cash Flows and Profits (Rs millions).. 46 Table 6: Business Parks of Mauritius Ltd .......................................... 46 FIGURES Figure 1: Value Added as a Share of GDP (in percentage) ................................. 3 Figure 2: Social Aid Payments ......................................... ......... 27 BOXES Box 1: The Impact of the European Economic Slowdown on the Mauritian Economy .............. 5 Box 2: Good Practice Principles on Conditionality.................................... 23 This Loan was prepared by an IBRD team consisting of Rafael Mufioz Moreno (Senior Economist, Co-Task Team Leader), Will Wiseman (Senior Economist, Co-Task Team Leader), Sawkut Rojid (Economist), Brinda Devi Dabysing (Private Sector Development Specialist), Gary J. Fine (Senior Private Sector Development Specialist), Margo A. Hoftijzer (Senior Economist), Olivier Cadot (Consultant), Mariem Malouche (Economist), Kathrin A. Plangemann (Lead Public Sector Specialist), Wolfgang M. T. Chadab (Senior Finance Officer), Khurshid Noorwalla (Team Assistant), Rita Obioma Itoro-Godfrey (Program Assistant), Vasish Ramkhalawon (Operations Officer), Mariella Beugue (Program Assistant), Joanna Alexandra Watkins (Public Sector Specialist), Nicholas Paul Manning (Adviser), Maria-Teresa Benito- Spinetto (Research Analyst), Alain W. D'Hoore (Lead Economist), Patrick Kabuya (Senior Financial Management Specialist), Fadila Caillaud (Senior Education Economist), Najibullah Motahedy (Team Assistant), Aissatou Diallo (Senior Finance Officer), Julie Dana (Lead Financial Officer) and Shahrzad Mobasher Fard (Research Analyst). 1v LOAN PROGRAM SUMMARY REPUBLIC OF MAURITIUS SECOND PUBLIC SECTOR PERFORMANCE DEVELOPMENT POLICY LOAN Borrower Republic of Mauritius Implementing Agency Ministry of Finance and Economic Development Financing Data IBRD Loan: Development Policy Loan (DPL). The proposed loan amount is US$20 million. Operation Type Programmatic DPL (two operations). The proposed operation is the second and final of the series. Main Policy Areas Social protection, education, trade competitiveness, civil service reform, public enterprise reform Key Outcome Indicators * Number of people with less than a secondary school certificate in the Placement for Training program under the National Empowerment Foundation, reflecting an increased poverty focus. * Number of households in the Social Register of Mauritius (SRM), which will serve as the basis for an integrated database for poverty-targeted programs. * Percentage of students entering Year 1 and completing the pre- vocational education cycle, reflecting increased access to quality secondary education. * Number of regulations on which a decision is taken after review, reflecting a reduction in unnecessary business regulations. * Number of ministries involved in issuing certificates/permits/clearances connected to the national single window, thus indicating greater administrative harmonization and a reduced administrative burden for businesses. * Time needed to settle the Customs administrative penalty amount, reflecting increased transparency and efficiency in the application of Customs appeals. * Gradual reduction in the time needed to process an amendment of schemes of service and in the number of schemes of service, reflecting increased flexibility in the civil service. * Number of state-owned enterprises (SOEs) included in the annual performance report prepared by the Office of Public Sector Governance (OPSG) and published on the OPSG website, indicating better monitoring of SOE performance and reform. Program Development The development objective of the DPL programmatic series is to Objective(s) and support improvements in the performance of the public sector in V Contribution to Country Mauritius by assisting the government to implement the following Partnership Strategy three reform pillars: (i) strengthening services to support and (CPS) empower the most vulnerable; (ii) streamlining trade regulations and processes; and (iii) improving human resource management in the civil service and the monitoring of SOE performance. Risks The implementation of the proposed reform program entails a number of risks: (a) The challenge of maintaining macroeconomic stability in the face of uncertain global developments. The economy has proven its resilience in 2012, but a firm commitment will be needed to rein in public expenditure and accelerate economic reforms if the global economic slowdown lingers. The government has the means and tools to cope with external and domestic economic challenges. (b) Political risks that may affect the pace of the reform program at a time when the need for reform is high, given growth prospects and global economic uncertainties. Many of these new public sector reforms will have redistributive effects, and the government may find it difficult to reach a minimum level of consensus on them due to its social impact. This DPL aims to mitigate this risk by supporting reforms where consensus exists while putting in place the building blocks necessary to expedite the broader reform program in the medium term. (c) Limited institutional capacity within the sector ministries to lead and implement the reforms. The DPL series has been instrumental in building bridges between the different ministries involved in the reform program, thereby enhancing coordination. The Bank's analytical work program also supports these reform areas while increasing the institutional capacity of sector ministries. In addition, this analytical work program has been coordinated with other development partners to leverage limited resources and to focus on the most relevant areas for maximizing the impact of reforms. Finally, the Bank and the government signed a services agreement for Reimbursable Technical Assistance (RTA) to provide additional institutional capacity to those sector ministries that need it. Operation ID P128140 vi REPUBLIC OF MAURITIUS SECOND PUBLIC SECTOR PERFORMANCE DEVELOPMENT POLICY LOAN PROGRAM DATA SHEET Date: February 25, 2013 Lending Instrument: Development Policy Country: Republic of Mauritius Lending Operation: Second Public Sector Board Approval Date: March 26, 2013 Performance Development Policy Loan Effectiveness Date: June 26, 2013 Operation ID: P128140 Closing Date: June 30, 2014 Team Leader: Rafael Mufioz Moreno/Will Sectors: Central government administration Wiseman (40%); Other social services (30%); General Sector Manager: John Panzer public administration sector (30%). Sector Director: Marcelo Giugale Themes: Social safety nets (25%), Administrative Country Director: Haleh Z. Bridi and civil service reform (25%), Export development and competitiveness (25%), State- owned enterprise restructuring and privatization (25%). Environmental screening category: Special Development Policy Lending: O Yes [X] No Crisis or Post-conflict Situation (exception to [Yes [X] No 0P8.60): Programmatic: [X] Yes [No Deferred Drawdown Option: ]Yes [X] No Subnational Lending: Operation Financing Data [X] IBRD Loan [rIDA Credit [] Grant [Other: Total Bank financing (US$m): 20.00 Proposed terms: IBRD Fixed Spread Loan payable in 18 years, (including 5 years grace period) Tranche Release Information Single tranche to be released upon effectiveness. Does the operation depart from the CAS in content or other significant [ ]Yes [X] No respects? Does the operation require any exceptions from Bank policies? [ ]Yes [X] No Have these been approved by Bank management? Y ]Yes ] N Is approval for any policy exception sought from the Board? [ ]Yes [X] No Program Development Objective (PDO) of the DPL programmatic series is to support improvements in the performance of the public sector in Mauritius by assisting the government to implement reforms within the following three pillars: (i) strengthening programs that support and empower the most vulnerable; (ii) streamlining trade regulations and processes; and (iii) improving human resource management in the civil service and the monitoring of SOE performance. vii PROGRAM DOCUMENT REPUBLIC OF MAURITIUS SECOND PUBLIC SECTOR PERFORMANCE DEVELOPMENT POLICY LOAN I. INTRODUCTION 1. The Government of Mauritius continues to diversify the economy to enable the country to achieve a higher income status in the medium term. Since independence in 1968, economic growth in Mauritius has been built on a long tradition of economic and institutional reforms. Mauritius has been transformed from a predominantly agricultural economy based on sugar production to a diversified economy structured around textile exports and tourism and, lately, around financial services. In the mid-2000s, a bold reform program supported by the Bank addressed the erosion of Mauritius' preferential trade status and rising commodity prices by strengthening fiscal consolidation, enhancing trade competitiveness, and improving the investment climate. Nevertheless, critical bottlenecks to Mauritius' economic development remain, highlighting the need to reinvigorate public sector performance, to improve the quality of service delivery, and to support overall economic competitiveness. Progress in these areas will be a key determinant of whether Mauritius will achieve its aspirations to become a high-income country over the next two decades. 2. As anticipated at the time of Development Policy Loan 1 (DPL1) approval, the pace of reform in Mauritius continues to be slow due to the technical and political complexity of the necessary public sector reforms. The design and implementation of the new reforms in the public sector is complex. They cut across many areas and require close collaboration between many stakeholders. As a result, not only are technical solutions complex but the institutional process itself is complicated. This requires sector ministries to take a firm lead, although many lack the capacity to do so. The new government program adopted in April 2012 seeks to prioritize those reforms that have the potential to yield broadly shared economic growth. However, hampered by these technical and institutional constraints, implementation is slow. 3. With economic growth slowing and global uncertainty mounting, the need for reform has become even more urgent. Mauritius' exposure to the global economy - especially to the European economies - is taking a toll on domestic growth, which is now projected to slow to around 3.3 percent in 2012. This is below the 3.7 percent projection made when the first operation under this DPL series was approved (in March 2012) and below the government's budget projections of close to 4 percent GDP growth in 2012. While the economy proved to be highly resilient in 2008 and the government has the means to cope with these external shocks, the sustainability of economic growth will be highly dependent on the government's ability to implement reforms to increase the efficiency of the economy. The fiscal position remains stretched, and any counter-cyclical fiscal policy will be difficult to sustain for an extended period of time, which highlights the need to increase public sector efficiency. To accelerate GDP growth while correcting external imbalances, Mauritius will need to undertake structural reforms to promote national savings and increase 1 competitiveness. These reforms will need to aim at to increase skills, improve infrastructure, and make the public sector more efficient. 4. This DPL series supports the strengthening of the institutional, policy, and management tools required to address some of the challenges posed by these reforms. In this context, the DPL series focuses on achieving feasible reforms in the near term while laying the necessary building blocks to accelerate reforms in the medium term. It does so by: (i) supporting the creation of systems (the Social Register of Mauritius, the Human Resource Management Information System or HRMIS, the trade portal, and the single window for trade) that will enable the government to define appropriate reform options and (ii) strengthening the institutions that coordinate the reform initiatives (the Office of Public Sector Governance, the secretariat for streamlining business regulations, and the National Empowerment Foundation). The DPL series focuses on three reform pillars: (i) strengthening services to support and empower the most vulnerable; (ii) streamlining trade regulations and processes; and (iii) improving human resource management in the civil service and the monitoring of SOE performance. DPL 2 will now help to consolidate these reforms while supporting the achievement of immediate results where feasible. Overall, the use of limited IBRD resources in this operation will give the government some leeway in lending should economic conditions deteriorate in the medium term. 5. Program implementation since DPL1 has been generally satisfactory, although technical and institutional constraints limited the progress made in some areas. While the social acceptance for bolder reforms is limited, the government remains committed to the reform program supported by this DPL, and progress has been made in all of the key areas. For instance, the Social Register of Mauritius (SRM) is already operational and registers the target population for new social protection programs. The curricula for the first and second years of pre-vocational education are being rolled out, and the Public Management Information System is operational and includes a growing number of SOEs. However, the pace of implementation varies, reflecting both technical complexities (such as the need to develop various IT systems) and the difficulties associated with the need to coordinate the different institutions involved in the reform process. In some instances, these issues have held up the achievement of certain goals such as the creation of the trade portal and the start of the pilot HRMIS. In this sense, the DPL is proving to be a useful tool as it is providing technical expertise and global best practices in the design of many of the required systems. Furthermore, it has in some cases filled a gap by acting as a catalyst for institutional coordination among the many stakeholders. 6. The proposed DPL is being prepared in coordination with the Bank's Private Sector Competitiveness (PSC) DPL, which will be presented to the Board with this operation. Both DPL series continue the close engagement that the World Bank has had with Mauritius over recent years and will strategically maintain the dialogue on areas essential for the long-term development of Mauritius. The two DPL series are designed to be mutually reinforcing and to address complementary aspects of the government's reform program while ensuring that the Bank's support remains sufficiently flexible. The PSC DPL series focuses primarily on strengthening the policy and institutional environment for private sector competitiveness, while this proposed DPL focuses primarily on the performance of the public sector. For instance, the reforms included in the PSP DPL in social protection will further support reforms supported by the PSC DPL that are related to small and medium-sized 2 enterprises (SMEs) and entrepreneurship schemes by providing more effective resources for the affected work force. If the government is going to successfully weather the challenges ahead and prepare itself for the next phase of rapid and inclusive economic growth, the reforms supported by these two operations will be instrumental to that success. II. COUNTRY CONTEXT Figure 1: Value Added as a share of GDP (in percentage) 7. Mauritius has had 80 an impressive development Source. Statistics Mauritius 1990 m 2012 record. Between 1985 and 60 2007, the Mauritian economy expanded at an 40 average annual growth rate of 5 percent on the strength 20 of the exports of garments, agricultural commodities 0 (principally sugar), seafood, I Primary Sector Secondary Sector Tertiary Sector and tourism services. Years of rapid growth have transformed the economy. Agriculture now accounts for less than 4 percent of GDP, manufacturing for around 17 percent of GDP, and the share of services is increasing (Figure 1). The manufacturing sector remains a strong contributor to employment in Mauritius. 8. In recent years, however, GDP growth, though positive, has remained below the level necessary to achieve the country's aspiration to become a high-income country by the next decade. There is evidence that domestic factors such as skills mismatches and infrastructure bottlenecks are economic development in Mauritius. There is still a crucial need to make the delivery of public sector services more effective and efficient. Competitiveness has also weakened as a result of structural rigidities in the economy. 9. In the near term, managing the ongoing uncertainties emanating from the global environment remains a challenge. The current account deficit projected for 2013 (9.6 percent of GDP) means that there is a need for policies to increase ailing investment, raise competitiveness, boost domestic savings, and limit the scope for more expansionary macroeconomic policies. Policymakers are well aware of this. Monetary policy will be more focused on containing inflationary pressures (inflation is projected to be 5.7 percent in 2013 compared with 3.9 percent in 2012). The government will also continue to build up international reserves, in part to moderate deviations of the exchange rate from fundamentals. In fiscal policy, the government will continue its efforts to bring down the discounted public sector debt-to-GDP ratio to 50 percent by 2018 from 53.1 percent in 2012,1 although there is some fiscal space and some contingency in the 2013 budget for a modest expansion should economic growth slows down because of deeper external shocks. I order to address both the ongoing and longer-term challenges facing the economy, the government should consider I The Public Debt Management Act 2008, as amended provides that for the purpose of Public Sector Debt ceiling, public enterprise debt be discounted on the basis of prescribed criteria (i.e. managerial independence, solid governance structure, market access, and limited risk). For 2012, public sector debt for the purpose of debt ceiling was 53.1 percent of GDP compared to total public sector debt of 56.5 percent of GDP. 3 accelerating the pace of reforms to build human and physical capital and increase the country's competitiveness over the longer term. 10. The wage-setting framework and a rise in skills mismatches will continue to put upward pressure on wages and weaken competitiveness. Over the last decade, manufacturing firms in Mauritius have experienced a loss in international competitiveness. Wages have more than doubled while labor productivity has increased by only 60 percent over the same period. Moreover, growth and competitiveness are being hampered by skills mismatches as Mauritius transitions towards a more knowledge-based economy. There is an oversupply of workers for unskilled or low-skilled jobs and an undersupply of workers for high-skilled jobs (most notably, in banking, health care, and tourism).2 In addition, the global economic slowdown is further affecting export-oriented enterprises, with some retrenchment in the textile sector being partially compensated for by job creation in the food and chemical export sectors. Not surprisingly, employment creation has fallen short of the 4.1 percent increase in the labor force experienced since 2008 that has been fueled by a sustained increase in female participation, and the unemployment rate has risen from 7.2 percent in 2008 to 8 percent in 2012. A. RECENT DEVELOPMENTS AND MACROECONOMIC POLICY FRAMEWORK IN MAURITIUS 11. Expansionary macroeconomic policies have enabled the economic recovery in Mauritius that followed the 2008/2009 global financial crisis. Real GDP growth slowed from 5.5 percent in 2008 to 3.1 percent in 2009 amid the financial crisis, before rising to around 4.2 percent in 2010. GDP growth subsequently slowed to 3.8 percent in 2011 and 3.3 percent in 2012 in the wake of renewed turbulence in the global economy. The government's consolidation efforts initiated prior to 2008 had created the fiscal space needed to adopt an expansionary macroeconomic policy stance. Between 2009 and 2011, fiscal stimulus measures, which mostly consisted of targeted programs to assist firms and workers, cumulatively accounted for about 7.5 percent of GDP. On the aggregate demand side, government consumption and investment contributed the most to growth in 2009, followed by a recovery in exports in 2010, and an increase in inventories in 2011. On the supply side, in line with the evolving structure of the economy over the last decade, overall growth was led by the service sector, particularly real estate services, hotels and restaurants, and financial intermediation. These together now account for around 23 percent of GDP, up from 18 percent in 1990. Hotels and restaurants, the industries that suffered the most in 2009, rebounded in 2010. 12. Despite the challenges to growth on the external front and the lower-than- expected expansionary fiscal policy, the economy is still projected to have grown by around 3.3 percent in 2012 according to latest estimates from Statistics Mauritius. This is below the 3.7 percent that was projected when the first operation in this DPL series was approved (in March 2012) and below the government's 2012 budget projections of 4.1 percent but significant in the context of the 2012 global economic slowdown, particularly of the European market to which Mauritius is very exposed to (Box 1). 2 A recent study conducted by the Human Resources Development Council (HRDC) suggests that 73 percent of firms operating within the tourism industry believe that there is a shortage of skilled labor. Some 58 percent of respondents indicated that educational institutions should establish a stronger relationship with employers so that their curricula meet the skills requirements of the labor force. 4 Box 1: The Impact of the European Economic Slowdown on the Mauritian Economy The main areas where economic shocks from the global economy have manifested in Mauritius are tourism, exports and commodity imports. The European economic downturn is adversely affecting Mauritius as the country remains highly dependent upon European markets. Exports and tourism from major European markets has stagnated during 2012 in terms of arrivals (see table below). This is being compensated for by increasing tourist arrivals and exports from Africa and Asia, but overall tourist arrivals remained lackluster during 2012. Imports, in turn, rose by around 19 percent in 2012 compared to 2011, led by rising food (20 percent increase) and fuel (35 percent increase) imports. Table 1: Exports and Tourist Arrivals, 2011 and 2012 2011 2012 % Change Exports of Goods 62,358 67,991 9.0 To Europe 38,328 39,308 2.6 To Africa 3,488 5,137 47.3 To Asia 13,140 15,980 21.6 Tourist Arrivals 964,642 965,441 0.1 From Europe 609,648 560,699 -8.0 From Africa 231,174 265,215 14.7 From Asia 91,057 104,336 14.6 Source: Statistics Mauritius 13. The fiscal position is improving, and the government achieved greater debt consolidation in 2012 than had originally been expected. The budget deficit for 2012 is now likely to be lower than projected (2.3 percent of GDP actual versus 3.7 percent of GDP projected).3 There has been a stronger than anticipated decline in recurrent expenditures as well as in public investment - each amounting to 1.1 percent of GDP - that were only partially offset by a 0.8 percent decline in revenues induced by the economic slowdown. As a result, total public sector debt was brought down to 56.5 percent of GDP in 2012 compared to 57.4 percent in 2011 (Table 2). 14. The government adopted a slightly more accommodating monetary policy stance in 2012 than in 2011, but it remains cautious nonetheless. The Bank of Mauritius reversed its tightening monetary policy in December 2011 as a result of the domestic economic slowdown and global uncertainties. The repo rate was further reduced to 4.9 percent in March 2012 and has been kept unchanged ever since. This more accommodative monetary policy was facilitated by a decline in inflation from 6.5 percent in 2011 to 3.9 percent in 2012, in part related to the slowdown in food prices as well as the appreciation of the rupee against, most notably, the Euro. In November 2012, the Bank of Mauritius' Monetary Policy Committee (MPC) expressed its concerns over the projected increase of the inflation rate to 6 percent in Both the total spending and the fiscal deficit figures have been corrected taking into account the spending from extra-budgetary funds. For 2012, we estimate a 0.4 percent of GDP contribution from extra-budgetary funds to the overall fiscal deficit. 5 2013 due to increasing food and oil prices, the recent rupee depreciation, and the impact of the public sector salary increase due to be awarded in 2013 as part of the Pay Research Bureau (PRB) report. This adds to the MPC's previous worries about the effects of prevailing negative real interest rates on savings deposits and on corporate indebtedness. As such, the Bank of Mauritius stands ready to revisit its policy in order to avoid any second-round effects on prices and wages. 15. The Bank of Mauritius has stepped up its sterilized interventions in the foreign exchange market to respond to the rupee appreciation and to build additional buffers against a potential economic slowdown. The rupee's appreciation - 5.5 percent nominal appreciation vis-d-vis the Euro between June 2011 and June 2012 - largely stemmed from relatively buoyant capital inflows, including FDI, growing government external borrowing (albeit on a sustainable trajectory), and large net capital inflows to the banking sector. In response, the Bank of Mauritius is implementing a medium-term program to increase foreign exchange reserves to six months of imports of goods and services (from 4.3 months as at the end of December 2011), with parallel sterilization of the additional money supply. By December 2012, foreign reserves increased by around US$268 million to reach US$2.9 billion or 4.5 months of imports of goods and services. As a result of this intervention, the rupee has depreciated by 3.4 percent vis-d-vis the Euro between June 2012 and December 2012. B. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 16. Real gross domestic product (GDP) is projected to rise by 3.7 percent in 2013, but this forecast remains subject to a downward revision should various risks to global economic growth materialize. This forecast is based on the assumptions that measures will be implemented to stimulate private investment, implement public investment, expand market share in emerging economies and support growth in emerging sectors while traditional sectors experience some consolidation. This projection also remains subject to a downward revision should external uncertainty linger and global economic growth continue to stagnate. Growth in GDP is expected to trend towards 4.5 percent by 2015 in line with the global economic recovery and a fiscal policy that is guided by the debt strategy requirement of reducing the total public sector debt-to-GDP ratio to 50 percent by 2018. 17. However, some downside risks to the economic outlook exist that could result in economic growth deviating from these projections. Domestically, the main downside risks to the economic outlook remain the slow pace of structural reforms to support growth, chief among which is the need to increase the efficiency of the public sector. This is essential in order to tackle critical bottlenecks in education and infrastructure. On the external front, the key downside risks remain sluggish growth in external demand and the pressure that this may put on the current account balance. Overall, these risks are manageable considering the resilience that the Mauritian economy has shown in 2012 and given the available means and tools to cope with external uncertainty. 6 Table 2: Selected Economic Indicators and Projections, 2009-2015 2()9 2)101 2)11 2)12 2)13 2014 2015 Est. Proi ri ri National income, prices and employment Real GDP Growth at market prices (%) 3.0 4.1 3.8 3.3 3.7 4.3 4.5 Growth in consumer prices (%) 2.5 2.9 6.5 3.9 5.7 4.6 4.7 Unemployment rate (%) 7.3 7.8 7.9 8.0 8.2 8.0 7.7 Savings and investment Gross national savings 13.8 13.3 13.1 14.7 15.4 16.2 16.7 Gross domestic investment 26.4 23.6 25.7 24.7 25.1 25.3 25.5 (Government budget Revenues and grants 22.8 21.9 21.4 21.4 21.9 21.3 20.3 Tax revenue 19.1 18.5 18.3 18.8 18.7 18.4 18.4 Total expenditure 26.3 24.9 23.5 23.7 24.5 23.2 21.7 Current expenditures 23.6 22.2 20.8 20.9 21.4 20.7 19.4 Compensation of employees 6.0 5.9 5.6 5.4 6.0 6.0 5.8 Use of goods and services 2.8 3.1 2.6 2.6 2.9 2.9 2.7 Interest payments 3.8 3.4 3.0 3.0 2.7 2.6 2.6 Transfers and subsidies 6.6 5.5 6.3 5.0 4.4 4.0 3.7 Net acquisition ofnon-financial assets 2.7 2.7 2.7 2.8 3.1 2.5 2.2 Fiscal balance (including extrabudgetary funds) -2.0 -3.0 -2.1 -2.3 -2.5 -1.9 -1.4 Net acquisition of financial assets 0.3 0.0 0.9 0.4 1.8 2.5 3.2 Borrowing requirements 2.2 2.9 2.9 2.5 4.1 4.2 4.3 External sector Balance of goods and services -10.5 -12.2 -13.2 -13.0 -12.5 -11.9 -11.5 Exports of goods and services 47.1 50.9 52.6 53.8 55.1 54.9 54.5 Imports of goods and services -57.6 -63.1 -65.8 -66.8 -67.6 -66.8 -66.0 Current account balance -7.4 -10.3 -12.6 -10.0 -9.6 -9.1 -8.7 FDI 2.5 3.1 1.6 1.7 1.5 1.5 1.6 Overall External Balance 4.3 2.1 1.6 1.8 1.2 1.3 1.1 Net international reserves (M1ns USD) 2,304 2,448 2,631 2,892 3,044 3,195 3,368 Months of imports of goods and services, f.o.b. 5.1 4.8 4.3 4.5 4.6 4.6 4.6 Memnorandlum irem s Public sector debt 59.6 57.4 57.4 56.5 55.8 55.0 54.3 Total external debt 22.0 22.3 23.7 23.7 25.1 26.7 26.5 GDP at current market prices (Rs. Bins) 282.4 298.8 322.8 344.6 377.9 412.1 451.0 Sources: Mauritian authorities; IMF and World Bank staff estimates and projections 18. The government envisages a prudent fiscal policy in 2013. The budget deficit for 2013 is projected to be 2.5 percent of GDP. Public spending is expected to edge up to 24.5 percent of GDP in 2013 (compared to 23.7 percent of GDP in 2012), with capital spending projected at 3.1 percent of GDP, above 2012 outlays. Public revenues and grants are expected to slightly increase to 21.9 percent of GDP and the Budget's fiscal deficit including spending from extra-budgetary funds, is expected to widen to 2.5 percent of GDP, up from an 4 For 2013, this includes additional 0.7 percent of GDP contribution from extra-budgetary funds. 7 anticipated 2.3 percent of GDP this year. The government is seeking to strike a balance between budget consolidation and measures to support growth. Special programs are being implemented to support vulnerable sectors (such as SMEs) and groups (such as unemployed youths and children) while seeking to ensure fiscal consolidation. The government is trying to achieve significant containment in transfers and subsidies (mostly transfers to parastatals and the public sector), which reflects the government's efforts to increase public sector efficiency in these areas. These transfers and subsidies have already been reduced from around 6.3 percent of GDP in 2011 to 5.0 percent of GDP in 2012 and a further decrease to 4.4 percent of GDP is projected in 2013. The government contemplates in the event of lower than accounted revenues the key expenditures will be protected using the remaining resources from the National Resilience Fund (1.1 percent of GDP). 19. Debt consolidation will be achieved despite the implementation of the recommendation of the 2012 Pay Research Bureau (PRB) report, which will raise the central government's wage bill by 19 percent in 2013. In practical terms, this adjusts public sector wages by the equivalent of the accumulated inflation over the last five years. As only partial adjustments were made during that time, mostly for lower rank grades, the PRB recommended broadening the top to bottom pay ratio, which was only 7:1. For the central government,5 the 19 percent increase in the wage bill for 2013 represents a sizeable amount of its budget (0.6 percent of GDP), particularly considering the uncertain external environment and the impact that it may have on the negotiation of private sector salaries. These in the past have followed increases in the public sector, which, if this happens again in this case, may put inflationary pressures on the economy. 20. The net financing requirements of the government are projected to increase from 2.5 percent of GDP in 2012 to 4.1 percent of GDP in 2013, around half of which will be used to provide loans for infrastructure development. Significant efforts have been made to lengthen the maturity of the domestic debt, with long-term debt (with a minimum maturity of five years) having increased to 52 percent of total domestic debt in 2013, up from 49 percent in 2012 and 43 percent in 2011. This will help to alleviate some of the risk involved in the significant amount of securities that were approaching maturity that had to be rolled over at a potentially higher interest rate. In order to lengthen the maturity on its debt and reduce its debt servicing costs, the government is also increasingly relying on external loans. These will represent 13.3 percent of GDP in 2013, up from 11.9 percent of GDP in 2012 when external loans already financed more than half of the budget deficit. External loans are mostly provided by international financing institutions. With these loans, the government is seeking to: (i) take advantage of low global and concessional interest rates and (ii) extend term maturities to reduce the risk of roll-over needs. These loans will mostly support government investments in transport, energy, and water. 21. The current account deficit will be financed by financial flows and to a lesser extend foreign direct investment (FDI). The current account deficit has widened from 7.4 percent of GDP in 2009 to 12.6 percent of GDP in 2011 mainly as a result of rising FDI- funded imports. This trend was reversed in 2012 as a result of the growth in exports and despite an increase in imports, the current account deficit is expected to narrow to 10 percent The PRB projects the wage bill for the central government, parastatals, and local entities at 8.8 percent of GDP in 2013, which represents an increase over the 8.2 percent of GDP recorded in 2008 at the time of the adoption of the last pay review. 8 of GDP. Moving forward, the current account deficit is projected to be further reduced to 9.6 percent of GDP in 2013 and 9.1 percent of GDP in 2014. Although the deficit is expected to be financed by financial flows and FDI, further increases in the price of food and fuel, and a more severe and protracted economic downturn in Europe than envisaged could lead to some deterioration in the deficit and in the ease of access to FDI. 22. The March 2012 Debt Sustainability Analysis (DSA) projects a sustainable public sector debt level for Mauritius over the medium-term. There was an increase in public sector debt from 52 percent of GDP in 2008 to 57.4 percent in 2011, resulting mainly from the implementation of the stimulus packages but subsequent fiscal consolidation is projected to bring down the total stock of public sector debt to 57 percent of GDP in 2013. The 2008 Public Debt Management Act (PDMA), amended in 2010 imposed a ceiling of 60 percent of GDP on the total amount of outstanding public sector debt, with the aim of reducing it to 50 percent of GDP by the end of 2018. Given current trends and policy, the medium-term debt trajectory is likely to comply with the Act. Under a baseline scenario with a slight acceleration of economic growth from 3.3 percent in 2012 to 4.2 percent beyond 2013 and a gradual reduction of the fiscal deficit to 2 percent of GDP by 2014, the debt-to-GDP ratio would gradually reach the PDMA 50 percent debt-to-GDP target by 2018. 23. Risks of deviations from a sustainable trajectory remain under extreme alternative scenarios. Under alternative scenarios such as a depreciation of the rupee by 30 percent caused by a severe contraction of world economy the debt-to-GDP ratio could exceed 65 percent in 2018, which would be above the PDMA ceiling. This would require the government to adopt more ambitious medium-term fiscal consolidation measures, including slowing down the implementation of the investment program and making efficiency gains in public expenditure. In the same vein, total external debt (estimated at 23.7 percent of GDP in 2012) is projected to be sustainable, though it may rise over the next few years to finance the public infrastructure program before stabilizing. External debt sustainability is resilient to a 30 percent real depreciation of the rupee, but external debt dynamics would become unsustainable over a five-year period should the external current account deficit increase by 3 percentage points of GDP compared to the baseline scenario. 24. The November 2012 Bank of Mauritius Annual Report presents a picture of a sound banking sector. Bank profits are high and their capital position is strong, with moderate exposure to market risk and changes in interest rates. Stress-tests by IMF staff have confirmed resilience of the banking sector to a variety of shocks. Loans to non-residents accounted for more than 50 percent of total bank loans and 29 percent of banks' total assets in 2011. These loans, predominantly financed by domestic residents and to a lesser extent Europe, were heavily concentrated in Asia and particularly, in India, with Mauritius serving as an intermediary of funds to this country. During the first nine months of 2012, roughly 73 percent of bank credit to residents was offered to the domestic corporate sector, with construction receiving the largest share at 26 percent followed by tourism (18 percent), trade (12 percent) and manufacturing (8 percent). The Bank of Mauritius is offering credit lines in foreign exchange accounts to cushion potential currency mismatches. Also, household indebtedness to banks rose from 12.8 percent of GDP to 17.2 percent between 2006 and 2011, 61 percent of which was for mortgages. 9 25. Overall, the macroeconomic framework is adequate for development policy lending. While the global economic slowdown took a toll on the Mauritian economy in 2012 and global economic uncertainties may continue in 2013, the economy has already proved - as in 2008 - to be highly resilient to external shocks, and the government has the means to cope with these external shocks in the short and medium term. III. THE GOVERNMENT'S PROGRAM AND PARTICIPATORY PROCESSES A. GOVERNMENT PROGRAM 26. In April 2012 the government presented its new program for 2012-15 called Moving the Nation Forward (MNF). The MNF represents the third major policy platform since the government came to power in 2005 and provides a broad vision for the development of the country. A Commission has been established to translate the MNF vision into a set of coherent programs with well-defined priorities, timelines, and performance indicators. The Commission will be in charge of preparing a 10-year Economic and Social Transformation Plan (ESTP) that will formulate strategies to accelerate the development of Mauritius within a decade. The ESTP is to underpin the three-year roll-ing program-based budgeting (PBB). 27. The main objective of the MNF is to help Mauritius to become a high-income country over the next 10 years, thus increasing per capita income from US$8,000 to more than US$14,000. The MNF seeks to "...raise the skills and capacities of our people, harness the power of technology, modernize and streamline... institutions, accelerate innovation in existing industries, and encourage diversification and growth in new and more sophisticated sectors."6 The MNF contains six pillars covering economic, political, social, and environmental issues. The strategies in the MNF will be translated into specific policy measures through the budget process. The first budget since the launch of the MNF was presented to Parliament in November 2012 and elaborated on many of the areas discussed in the MNF. Pillar 1: Prosperity for All 28. The government remains committed to the path that has produced the economic growth of the last seven years, particularly to promoting an open and market-friendly environment, keeping taxes low, and streamlining regulations. The government's efforts towards the latter goal have been recognized this year in the World Bank's Doing Business Index, where Mauritius has advanced five positions up to 19th. However, in view of the rapidly changing world economy, including the growing importance of emerging markets and the new challenges faced by the domestic economy, the government aims to reduce the country's dependence on Europe. It will do this by increasing its exposure to middle income and higher growth economies while at the same time moving up the value chain and encouraging growth, investment, and jobs in new sectors. 29. New sectors such as the "ocean economy" are being harnessed to accelerate growth over the medium term. The government intends to prepare a plan for the 6 Moving the Nation Forward, Introduction, para 10. 10 development of an ocean economy, taking advantage of its very large Exclusive Economic Zone in the ocean (2.3 million square kilometers or about 1,000 times the country's land). This will include fundamental and applied research on the ocean and the development of a regional fisheries management plan and related legislation, which will ensure that the fishing industry remains economically and environmentally sustainable. 30. Reform in traditional sectors such as sugar and tourism will be accelerated. The sugarcane sector continues to face the consequences of the dismantling of the Sugar Protocol that is part of the continuing reform of the EU Common Agricultural Policy, as well as the abandonment of lands by small planters. Hence, the government intends to step up the reform of the cane industry as well as to modernize and diversify the agro-food production sector to make it competitive and sustainable. In tourism, the government aims to attract visitors from a broader spectrum of countries, to increase spending per tourist, and to develop new tourism products. The Bank is supporting by the latter goal by analyzing how to strengthen regional cooperation in the tourism sector. 31. In the financial sector, the government intends to support the diversification of the global business sector. In particular, it will upgrade the legal and regulatory framework to encourage the sector to provide more value-added products to enhance the attractiveness of Mauritius as an international financial center. In particular, the sector will be encouraged to provide fully integrated services and to tap into more opportunities within Africa. In the domestic financial services sector, the government is encouraging providers to offer innovative financial products and widen access to financial services to all segments of the population. 32. Efforts to improve the investment climate and to provide clear and transparent guidelines for investors and traders will continue. The government will seek to attract FDI to high value-added sectors as well as to infrastructure. In particular, the government intends to attract enough FDI to finance 10 percent of the Public Sector Investment Plan (PSIP) by 2015. The government will continue its financing, promotion, and employment support to SMEs, including reinforcing support to women entrepreneurs and making access to finance easier for SMEs. The government is also continuing to modernize its trade systems. Supported by the DPL, it will launch a new online "single window," which will provide a one-stop shop for processing all imports, thus greatly facilitating trade. Also, the 2013 budget revised the customs appeals mechanism by setting penalties following a transparent rule, another measure supported by this DPL. 33. Integration and connectivity with other African countries remains a top priority. To broaden Mauritius' economic space, the government intends to promote opportunities for increasing cross-border investment and trade in the region. The 2013 budget commits Mauritius to participating, together with four other nations, in an accelerated regional 7 Key priority measures to be implemented in partnership with all stakeholders include: (i) redefining land and agricultural policies; (ii) creating new financial schemes; (iii) offering risk management schemes; (iv) constructing modern slaughterhouses that meet export norms; (v) increasing access to markets; (vi) building institutional and human capacity, including empowering women; and (vii) strengthening the governance of institutions. 11 integration initiative supported by the World Bank.8 The government also plans to remove barriers to trade by exempting individuals from the visa requirement or, where necessary, by allowing them to receive a visa upon their arrival in the country. It also envisages signing double taxation agreements with five African countries, granting Freeport status to companies wishing to carry out specific manufacturing activities entirely for export to Africa, and expanding Freeport zones. 34. The government intends to implement a set of measures to address skills mismatches, which mean that employers are unable to find qualified personnel and unemployed workers experience difficulties in finding jobs. A new National Training Strategy will be developed to ensure that the education and training system keeps pace with the evolution of the labor market so it is able to produce workers capable of meeting the skills needs of the country until 2025. Particular efforts will be made to increase young people's employability and skills. To this end, the government will launch a National Youth Employment Program for those aged between 16 and 30 years old to provide them with apprenticeships, training, and placements in various sectors of the economy. 35. The government will continue to consolidate public finances to reduce public debt to below 50 percent by 2016, two years earlier than initially envisaged. It will do so by ensuring that domestic revenues cover recurrent expenditures and that net new government borrowing is used to finance investment. While continuing its low tax policy, the government will strengthen tax collection and broaden the tax base, thus raising more revenue. The government will also seek to reduce the costs and improve the quality of the services provided by parastatal agencies and state-owned enterprises. As a mechanism for supporting this, the government has strengthened the role of the Office of Public Sector Governance (OPSG) to monitor the performance of public enterprises and to supervise the implementation of the public enterprise improvement program agreed by the Cabinet. This revision of the mandate of the OPSG was supported by the first DPL in this series. Pillar 2: Enhanced Connectivity 36. The government will continue to invest in the expansion and modernization of public infrastructure with the aim of becoming a regional transport hub. This will be achieved by selecting a strategic partner for the Cargo Handling Corporation to invest in port infrastructure to increase the volume of container traffic. The government also plans to restructure Air Mauritius to give it greater global connectivity and make it more efficient. Also, several major projects to ease road traffic are currently being implemented as a continuation of the ongoing Road Decongestion Program. Budgetary resources for the construction and maintenance of roads and bridges are expected to nearly triple over the next two years. The government will also accelerate the implementation of a major nationwide 8 In an effort to promote greater trade and investment, the Governments of Malawi, Mauritius, Mozambique, the Seychelles, and Zambia have launched an Accelerated Program for Economic Integration aiming at: (i) accelerating the reduction of trade barriers and burdensome regulations; and (ii) accelerating the pace of economic integration by creating trade and promoting and investment at the regional level to increase competitiveness, enhance growth, and create jobs. This initiative, which is being supported by the World Bank, follows the spirit of rapid integration based on variable speed and variable geometry adopted by the council of Ministers of Finance and Central Bank Governors of COMESA (July 2011) and SADC (November 2011) and is open for other countries to join. 12 mass transit system. In general, investments in land transport will be made through public- private partnerships (PPP) to take advantage of the substantial financing available from the private sector as well as the sector's experience in implementing successful infrastructure projects. The government is aware that this program is ambitious given current investment levels as well as the country's limited capacity and lack of expertise, as demonstrated by the slow execution rate of the public investment program. To address this, a Project Management and Delivery Unit set up under the Prime Minister's Office will be in charge of the timely implementation of all infrastructure projects. 37. The government will also accelerate the development of the Information and Communications Technology/Business Process Outsourcing (ICT/BPO) sector and reap the benefits that it offers in terms of investment, FDI, and youth employment. The 2013 budget contains a lot of innovative ICT measures, including a commitment to subsidize broadband access charges to bring down the price from Rs 349 to Rs 200 per month (or US$6.35) and a commitment to invest Rs 600 million (US$19 million) in a submarine cable to Rodrigues (with enhanced satellite connectivity in the interim). It will also support setting up an ICT academy to train and increase value added per worker in the sector. Once the new submarine fiber-optic cable is operational, the government plans to connect every household to at least 1 megabyte per second by 2015. It is also implementing the WiFi Mauritius Program to provide free Internet access points across Mauritius and Rodrigues with a view to achieving full universal Internet access. In addition, the Data Protection Act will be amended to incorporate new international data protection principles to strengthen safeguards related to the processing of personal data and to attract more investment in the ICT sector by ensuring a free and secure flow of data. Pillar 3: Empowering People 38. The government is committed to continuing its efforts to transform the education system by emphasizing equitable access, enhanced quality, and improved learning. It will enhance the primary school curriculum to include new topics such as civic education, health literacy, information technology, and sustainable living and will review the function of the Certificate of Primary Education (CPE) exam, including the current system of certification and the allocation of places in secondary education. The government will implement a new dedicated program for Zones d'Education Prioritaires (ZEP) schools to replicate good practices and sustain the mechanisms that exist to support all children with learning difficulties. Supported by this DPL, the government is also launching a comprehensive reform of the pre-vocational stream of secondary education to increase its effectiveness in serving the needs of students and in helping them to transition to further technical training and into the world of work. The government will introduce a quality assurance and inspection framework with a view to improving the quality of teaching and of student performance in both state and private secondary schools. The government will also introduce a tertiary education bill that will provide a framework for the regulation of tertiary education, including enhanced tools to ensure quality assurance. 39. In the area of early childhood development, the government is emphasizing preventive health care and an additional focus on pre-primary education. A Student Health and Wellness Program will be introduced to promote health literacy. In this context, the "Child Health Passport" will be updated with regular medical checkups for children 13 attending public primary schools. The government will make pre-primary school compulsory for children aged 3 to 5 years old as of January 2013 and, over the next three years, will facilitate the creation of nursery schools in all districts. It will also introduce a support scheme for private pre-primary schools to improve the quality of care and education. In the special education needs sector, the government will introduce an early identification and assessment program to profile the needs of differently abled learners to enable timely intervention. 40. To eradicate extreme poverty in the medium term, the government will strengthen the programs of the National Empowerment Foundation (NEF) and continue the roll-out of the Social Register of Mauritius. The government continues to dedicate significant resources to its poverty alleviation programs, led primarily by the NEF, and it is seeking to achieve greater efficiency and impact by harmonizing these programs while ensuring strong social worker case management at the household level. All poverty-targeted programs going forward will use the consolidated Social Register of Mauritius, which will strengthen monitoring and synergies between programs. In the recent budget, new programs that will increase the access of vulnerable groups to housing were announced as was a new program to provide one-off cash transfers to primary school students from underprivileged backgrounds with good attendance and who have passed their exams. The implementation of the Social Register of Mauritius is being supported by this DPL. Pillars 4 and 5: Cohesive Society and Strong Nation 41. In the health sector, the government is committed to continuing to provide universal, accessible, and efficient health services that focus on the customer. The primary focus will be on overall wellness, with increased attention given to prevention rather than just curative health care. To that end, the government plans to invest in health infrastructure and in human resources to ensure the provision of quality services and to address Mauritius' major challenges. These include the prevention and control of non- communicable diseases and the need to address the socioeconomic impact of the demographic transition. An aggressive community-based program will be implemented throughout Mauritius with the aim of preventing non-communicable diseases.9 42. The government will continue to modernize the civil service and provide it with the resources required to deliver high-quality services. To that end, it will set up a Civil Service College, which will include a School of Diplomacy and International Relations. The government is also launching an integrated Human Resource Management Information System (HRMIS) to facilitate more effective workforce and performance management and thereby make the civil service more efficient and transparent. The roll-out of the HRMIS is being supported by this DPL. 43. The government will continue to support the Independent Commission Against Corruption (ICAC) and is committed to fighting corruption by implementing international and regional anti-corruption instruments. These include the United Nations Convention Against Corruption, the Southern African Development Community (SADC) 9 Among specific health programs, the government strategy notes the current preparation of an action plan to mitigate cancer risks, a community-based program to prevent non-communicable diseases, a National Drug Control Master Plan to reduce substance abuse, a National Food Safety Action Plan, and measures to further reduce HIV infections. 14 Protocol against Corruption, and the African Union Convention on Preventing and Combating Corruption. As a second phase of the implementation of the Public Sector Anti-Corruption Framework, public bodies will be called upon to adopt corruption risk management techniques.10 The government will also reinforce the existing legal framework taking into consideration the observations of the Parliamentary Committee on the ICAC. 44. The governance and operations of local government authorities will be reviewed to increase efficiency in service delivery. To that effect, the government, in accordance with the new Local Government Act, intends to develop a new grant-in-aid formula to distribute central government grants among local authorities fairly and equitably. A land use planning bill will promote investment opportunities and orderly development. In the context of the decentralized political system, the government will work closely with the Regional Assembly to develop Rodrigues' infrastructure, diversify its economy, address water shortages, and improve health services. Pillars 6: Sustainability 45. The government is currently implementing the Maurice Ile Durable (MID) project, which provides a broad framework for achieving a modern and sustainable Mauritius. The MID is to be translated into concrete actions through the MID National Policy, a 10-year strategic framework, and a three-year action plan to be completed during this year. 46. Securing water resources remains a major challenge in Mauritius, given increased demand and the impact of climate change. The government aims to manage water in a holistic manner, to improve the total water management system in order to provide drinkable water to all users at all times, and to reduce water losses to a minimum. To promote the optimal use of resources, the government has decided to undertake a major institutional reform of the water sector that will involve integrating the four major institutions involved in water management into one single institution. The government is also making significant investments to improve water supply infrastructure, including building several dams and reservoirs. 47. In the energy sector, the government will continue to implement the Power Sector Expansion Plan, which aims to provide a reliable supply of electricity using low-cost clean technologies. In addition, measures will be implemented to promote energy savings and to increase efficiency." As renewable energy will be insufficient to meet increased demand, 10 To complement the Anti-Corruption Framework, public officers will be trained to act as "Integrity Officers" to contribute to the establishment of ethical culture, to prevent and address corruption, and to be a public symbol of the organization's commitment to integrity. The ICAC has also carried out 33 corruption prevention reviews and other preventive measures, such as the design of codes of conduct and best practice guides for procurement. The ICAC is working to extend and deepen its impact, efficiency, and performance management. The Bank is discussing with ICAC options to support in the preparation of a strategy and action plan on anti-corruption. " Current installed renewable capacity in Mauritius, which is mainly hydro and bagasse, accounts for less than 20 percent of total power generation. Most hydro and bagasse resources in Mauritius have already been used, leaving little scope for further development, but there is potential for other alternative energy sources (biofuels, solar, wind, and micro hydro). The Long-term Energy Strategy 2009-2025, prepared by the Ministry of Energy and Public Utilities, favors renewable energy generation in the short to medium term, and the Maurice Ile Durable (MID) Fund has already promoted renewable energy. In 2009, grants and soft loans for purchasing solar 15 the government is studying alternatives such as using liquefied natural gas and building a 100 MW coal power plant by 2015. The government has also developed a framework for the local production and use of ethanol, which will bring environmental benefits, increase the production of renewable energy, and reduce the country' dependence on imported fossil fuels. 48. The National Development Strategy (NDS) sets out the government's land use strategy for the next 20 years to ensure the sustainable management of land to better support the economy and the environment. A Land Use Planning Bill will be introduced in Parliament that will set out strategic and detailed planning processes to promote investment opportunities and orderly development. Also, a Land Administration, Valuation, and Information Management System Project is being implemented to modernize land management. The government also intends to intensify the protection of biodiversity by extending surveillance of protected areas by the National Parks and Conservation Services by more than 80 percent. B. PUBLIC BUDGET CONSULTATIVE PROCESS AND TRANSPARENCY 49. There are various ways in which stakeholders and civil society are consulted during the preparation of the annual public budget, which is the main instrument for introducing economic reforms in Mauritius. Each year, the Joint Economic Council (JEC), the largest private sector coordinating body in Mauritius, discusses private sector business priorities with the Ministry of Finance and Economic Development (MoFED) as part of the preparation of the public budget. MoFED also discusses sector issues and proposals with industry associations and labor unions. More recently, MoFED has solicited proposals from civil society and has posted some documents on the web to solicit feedback during the preparation of the budget. With regard to the reforms supported by this operation, the World Bank has undertaken extensive consultations with all relevant line ministries, who in turn lead the consultations with a wide range of stakeholders. For example, consultative groups that include representatives from the private sector have been formed to discuss the reforms related to trade and business competitiveness. Also, the relevant ministries have consulted with civil society regarding the strategic plan for the NEF, and workshops have been organized by the Ministry of Civil Service and Administrative Reforms (MCSAR) to discuss the preparation of the HRMIS with all stakeholders. 50. A Public Expenditure and Financial Accountability (PEFA) assessment prepared jointly by the IMF, the World Bank, the UNDP, and the EU in 2010 confirmed the high transparency standards of the Mauritian public budget. The report found that public access to key fiscal information is adequate, with budget documents being made freely available to the public in a timely fashion. All budget documents are posted on the government website immediately upon the submission of the budget to Parliament, and published documents are also made available. Also, audited year-end financial statements are made public well within the six-month period after the completion of the audit, and contract awards are also published on the websites of the relevant executing agencies. The PEFA thermal systems were given to 25,000 households, and 650,000 energy saving lamps have been sold at a subsidized rate. Existing road lighting is being replaced by energy efficient systems. In addition, two wind farm projects and two mini hydro power projects are being implemented. The next step contemplated under the MID fund is to enable small independent power producers to integrate into the power generation system. 16 assessment gave the classification and comprehensiveness of the information included in the budget documentation its highest possible ranking according to the Government Finance Statistics 2001 classification system adopted by the government in 2008. However, the reporting of extra-budgetary expenditures could be improved, and with this in mind, the government is consolidating the various off-budget funds into one single consolidated fund. IV. THE BANK'S SUPPORT FOR THE GOVERNMENT'S REFORM PROGRAM A. LINK TO THE COUNTRY PARTNERSHIP STRATEGY 51. The proposed DPL series is closely linked to the Country Partnership Strategy (2007-13) for Mauritius (developed jointly by the World Bank and the Government of Mauritius) and to the government's reform program. The Country Partnership Strategy (CPS) Progress Report approved in 2011 extended the CPS to FY2015 to align it with the electoral cycle in Mauritius. The CPS Progress Report emphasized that the proposed DPL series will be the Bank's main vehicle for supporting the government's broad reform program. The DPL series is also closely aligned with the Bank's Africa Region Strategy. Streamlining trade regulations and processes will increase competitiveness and employment creation, while the reform of the social protection system aims to increase the amount of support provided to the most vulnerable. Also, the reforms in the civil service and in the monitoring of SOE performance will improve governance and increase public sector capacity. Furthermore, the DPL emphasizes the Bank working with other development partners to produce joint analysis (for example, on social protection with the UNDP) and to build consensus on the ongoing reforms. B. COLLABORATION WITH THE IMF AND OTHER DONORS 52. International Monetary Fund (IMF): Mauritius has no formal program with the IMF, though the IMF's annual Article IV reports have provided technical insights into sources of growth, labor markets, inflation, exchange rates, and monetary and fiscal policy in Mauritius. Also, the IMF has provided key support in the area of fiscal efficiency and budget reform, with a focus on performance-based budgeting and the Medium-term Expenditure Framework (MTEF). In 2011, the IMF established the Africa Regional Technical Assistance Center South (AFRITAC South) in Mauritius to provide technical assistance to countries in Southern Africa in areas such as macroeconomic policy, macro-fiscal policy, and public financial management. In addition, an IMF Regional Training Center for Sub-Saharan Africa will be opened in Mauritius in 2013. The recently completed PEFA assessment for Mauritius was prepared jointly by the IMF, the World Bank, the UNDP, and the EU. 53. European Union (EU): The World Bank and the EU collaborated on a joint diagnostic and results matrix for the World Bank's CPS and the EU's 10th European Development Fund (EDF) Country Strategy Paper for the period 2008-2013. Between 2006 and 2013, the EU has provided Mauritius with two sector budget support operations, on the wastewater sector for E3 8 million and on the sugar sector for EI million. The latter aimed to restructure the sugar industry in the context of the phasing out of sugar price guarantees awarded under the former African, Caribbean, and Pacific (ACP) Sugar Protocol. Also, it has supported the economic reform program of Mauritius through three rounds of general budget 17 support, with additional focus on education and socioeconomic empowerment, particularly of the most vulnerable. The EU has finalized the preparation of a new three-year general budget support program of around 686 million that will span the period 2013-2015. In addition to its traditional areas of engagement (macroeconomic stability, sound public financial management, and the implementation of the government program), the EU support program will focus on performance indicators related to the sugar reform measures, education, SOEs, health, and social protection. Close EU and Bank coordination continues, with joint prior actions agreed in the areas of SOE reforms. The EU recently assisted Mauritius in aligning its national data protection legislation with EU guidelines. 54. African Development Bank (AfDB): The main African Development Bank program in Mauritius is the ongoing US$700 million budget support operation (of which US$163 million has already been disbursed). This was approved in 2009 to mitigate the impact of the global downturn on economic growth and employment in Mauritius while improving its trade competiveness, health sector, ICT, and public financial management. These policy reforms were aligned with the World Bank's previous DPL series. The AfDB has also provided around US$3.5 million of technical assistance between 2005 and 2011 in areas such as ICT, PBB, and public debt management. The AfDB and the World Bank have closely collaborated in the production of economic and sector work (ESW), including the Africa Competitiveness Report, the Investment Climate Assessment (ICA), and the Country Economic Memorandum update. 55. United Nations Development Program (UNDP): The US$15 million UNDP Country Program (2009-2012) for Mauritius was undertaken jointly with the government and in consultation with non-state actors and development partners. The Country Program is guided by principles of national ownership, multi-stakeholder partnerships, and synergies. It focuses on capacity development in four strategic initiatives aimed at creating more growth opportunities to restore the economy: (i) the Empowerment Program (EP); (ii) the Zone d' Education Prioritaire (ZEP); (iii) program-based budgeting (PBB) and sector strategies; and (iv) environment protection, energy, and the management of natural resources. The new Country Program for 2013-2016 will focus on planning and resource management for inclusive growth, on social inclusion and empowerment, and on energy and the environment. 56. Agence FranVaise de Developpement (AFD): The AFD intervenes in the form of both budget support and project financing in Mauritius. The main sectors of intervention are infrastructure (transport, water, and wastewater), private sector development, and sustainable development (the Maurice le Durable process, energy efficiency, and green energy). The AFD disbursed 624 million per year between 2007 and 2009 in alignment with the DPL series timetable. In 2010, the AFD budget support took a sector approach in the form of an Environment Aid Program. A new energy development policy loan initiated in 2012 is going to focus on the policy dialogue on energy supported by technical assistance to strengthen planning. There is a E1.5 million grant available to support business growth, of which half has been disbursed, as well as a 640 million program to support "green investments" by companies, which is almost fully disbursed. 18 C. RELATIONSHIP TO OTHER WORLD BANK OPERATIONS 57. This DPL series is being implemented in parallel with the Bank's Private Sector Competitiveness DPL series (to be presented to the Executive Board shortly after this operation). The Private Sector Competitiveness (PSC) DPL series focuses on: (i) enterprise growth and competitiveness; (ii) increasing access to finance; and (iii) promoting ICT and e- government support. The PSC DPL series will focus primarily on strengthening the policy and institutional environment for private sector competitiveness, while this proposed DPL series will focus primarily on the performance of the public sector. The reforms supported by both DPL series are complementary, and the two operations have been prepared in coordination to ensure the coherence of the entire reform program and to keep transaction costs low for both the government and the Bank. 58. The policy reforms supported by the Bank's DPLs are complemented by the US$50 million Mauritius Infrastructure Project. This sector investment loan (SIL) approved in 2009 aims to accelerate public investment and reduce critical infrastructure bottlenecks, mostly in the transport sector. The government aims to further strengthen infrastructure capacity-building and is seeking a second infrastructure project to reduce transport costs, improve road maintenance, and contribute to improved road management and road safety in Mauritius. This project, which is expected to be approved in FY14, is tentatively considering piloting output- and performance-based road contracts, improving road safety management, and strengthening the institutional framework and building institutional capacity in the transport sector. D. LESSONS LEARNED 59. The last programmatic DPL series yielded important lessons that have informed the preparation of this DPL series. These lessons included the need to ensure that: (i) the DPL is aligned with the government's priorities and leadership; (ii) there is strong coordination with development partners; and (iii) the loan is designed to include an appropriate degree of flexibility to allow the government to respond to emerging crises as well as for the reform program to evolve over time. 60. The success of a DPL in Mauritius is measured primarily by its capacity to stimulate and support the policy agenda rather than its financing. In Mauritius, the government views the Bank's budget support as a catalyst for stimulating and coordinating its policy agenda. The previous DPL series was effective in helping MoFED to bring sector ministries and agencies on board and to align other donors with the reform effort. During the preparation of the new series, the government has repeatedly emphasized that this is, and will remain, the main value added of World Bank support, as it remains possible for the government to close its financing gap in both domestic and external markets. The government's continued realignment of the Bank portfolio away from sector investment loans towards DPLs further underscores this. 61. It is crucial to ensure that Bank operations are aligned with the government's priorities and are implemented under the government's leadership. The government has a strong sense of direction with regard to its reform program and has the technical expertise to undertake policy dialogue with the Bank and other development partners. The Bank has 19 contributed to this through its parallel preparation of economic and sector work in priority areas. The dialogue has gradually built a consensus about the reforms and helped the participants to articulate country priorities linked to clear and achievable outcomes. Leadership and political commitment from the government complemented by strong institutional capacity in designing and implementing the policy reform agenda have been the critical factors in the success of previous operations. 62. Strong coordination with development partners reinforces the government's program implementation. The previous DPL series succeeded to a large extent because of the harmonized policy dialogue among all development partners. This often translated into joint prior actions, missions, and single reporting for all development partners, thus significantly reducing the government's transaction costs. The operations in the programmatic series were aligned with the government's budget cycle to reinforce national institutions and to use the annual Budget Speech to sustain the reform process. Furthermore, the timing of the operations was adapted to match the revised budget calendar. This joint partner approach has weakened during the 2010 hiatus in Bank DPL support, but the proposed new DPL programmatic series presents an opportunity to once again align the policy dialogue and the financing of all development partners with the government's priorities. 63. It is critical to build enough flexibility into the loan for the government to be able to adjust and respond to the country's changing needs. The previous DPL series included this flexibility in two important ways. First, the DPL series was able to adapt to immediate changes in the external environment, particularly the 2008 crisis, through a rapid deferred draw down option (DDO) as well as through an increase in the value of the loan of the third operation. This helped to keep the reforms on track and provided the resources needed to reduce any potential economic risks. Also, one additional operation was added to the series to align it with the electoral cycle. Second, the previous DPL series took a flexible approach in building support for and a consensus about the reform program, thus allowing the Bank to be perceived as an honest broker of diverging views. This allowed the reform program to develop over time, with the DPL serving to bolster the program and support the development of an overall coherence and vision. E. ANALYTICAL UNDERPINNINGS 64. The preparation of this DPL series has been based on extensive analytical work carried out by the Bank, the government, and other partners. The World Bank 2006 Aid for Trade (AFT) Report contributed to the government reform program supported by the previous DPL series. This work was complemented by a report produced by the Permit Review Committee (PRC) of the Government of Mauritius and Jacobs and Associates and DCDM Mauritius in 2009 that highlighted constraints to competitiveness such as redundant licensing and permits and the duplication of information requested for trade. As a result, a "single window" that connects all permit-issuing agencies was established, and a thorough review of existing procedures for the issue of licenses and permits was launched. Furthermore, the recommendations stemming from the 2010 Bank report titled Enhancing and Sustaining Competitiveness in Mauritius: Policy Notes on Trade and Labor nurtured a productive policy dialogue with the government on the issue of trade policy and labor markets. Finally, the UNDP's 2011 Report on Trade Mainstreaming in Mauritius 20 identified the successes and challenges associated with mainstreaming trade into national development strategies. 65. The second 2009 Investment Climate Assessment (ICA) for Mauritius prepared by the World Bank, the AfDB, and the Board of Investment (BOI) identified some obstacles that hinder firms' competitiveness, particularly the difficulty that small firms have in accessing finance and the lack of skilled labor. Also, the regulatory environment (licensing, labor regulations, and tax policy) and infrastructure (transportation and electricity) affects firms' productivity. The recommendations made in the ICA have contributed to the reforms outlined in the competitiveness component of this proposed operation (Pillar 2) on the need to harmonize regulations and eliminate red tape. In 2011, the report titled Skills and Technology Absorption in Mauritius prepared by the World Bank pointed out constraints in both the education system and on-the-job training to increasing the skills of the workforce to enable them to use new and emerging technologies. The report's recommendations focused on the important role that should be played by the primary and secondary education system, particularly in the pre-vocational system, the need to enhance the capacity of tertiary education to teach innovative and technological skills, and the need to foster technical and vocational education and training and active labor market programs. 66. The government's 2010 Social Protection Review and Strategy and a 2010 joint World Bank/UNDP report on the reform of the NEF have both guided the preparation of the social protection component of this operation (Pillar 1). These studies identified capacity gaps and bottlenecks in program implementation at the NEF and recommended steps to increase its effectiveness based on international best practices. These reports have guided the policy dialogue to improve institutional arrangements at the NEF and its social protection strategies. 67. The 2011 Public Expenditure and Financial Accountability (PEFA) assessment (produced jointly by the IMF, the World Bank, the UNDP, and the EU) showed the progress that had been achieved by the government since the 2007 PEFA assessment (conducted by the EU) in moving forward the public financial management (PFM) reform agenda. Its main achievement has been the implementation of program-based budgeting (PBB) in the past three years. There has also been substantive work undertaken to strengthen complementary reforms, including procurement, budget execution, and external audit processes. This has resulted in improvements in the PEFA indicators relating to budget credibility, comprehensiveness, and transparency in Mauritius and to policy-based budgeting. However, the assessment highlighted a number of areas where further reforms were required including: (i) strengthening the macro-fiscal strategy to ensure that ministers and controlling officers adhere to the MTEF; (ii) stronger links between the multi-year estimates and subsequent annual estimates; (iii) more credible project appraisal of capital projects; (iv) further strengthening of tax collection arrangements; (v) reducing the frequency of in-year budget adjustments; (vi) strengthening debt management; (vii) further strengthening internal and external audits; and (viii) increasing the effectiveness of parliamentary oversight. The government designed a PEFA action plan (2011-2013) focused on these reforms and has made positive progress in implementing it. Public finance management legislation is being developed to replace the Finance and Audit Act, the aim of which is to embed PFM requirements in law, including enhancing the regulation of transparency and accountability and the sound management of the revenue, expenditure, assets, and liabilities of the government. 21 68. The World Bank's 2012 technical overview note titled Improving the Performance of the Civil Service in Mauritius provided the Ministry of Civil Service and Administrative Reform (MCSAR) with a diagnosis that supported its effort to prepare a civil service reform strategy. The note acknowledged the incremental reforms made during the last decade to improve the performance of the civil service and also recognized the good reputation that the civil service in Mauritius has for discipline and probity. However, it also highlighted some constraints to improving the performance of the civil service within the current system. The civil service in Mauritius has changed only fairly slowly, and it retains more traditional career structures than many other Commonwealth administrations, which undermines the government's efforts to make the public sector more results-oriented. 69. In 2011, the Bank produced its Corporate Governance Reports on the Observance of Standards and Codes (ROSC) Report, which assessed the corporate governance policy framework in Mauritius. It highlighted the fact that most of the recommendations from the 2002 Corporate Governance ROSC had been implemented and that the country now has institutions and laws that reflect (and even set) international good practice. Additional reforms in Mauritius should focus mostly on further helping regulatory bodies to protect investors and to maintain financial stability and on improving governance within parastatal companies. In addition, the Bank also prepared a Report on the Observance of Standards and Codes (ROSC) - Accounting and Auditing in 2011. The report recommended the adoption by the private sector and SOEs of the good accounting and auditing practices necessary to produce quality financial reports (including the implementation of the recommendations from the 2003 ROSC report). The report also recommended improved support to accountants and auditors - including those in SOEs - to ensure that they fully comply with the stipulated financial reporting standards and issue quality reports that support accountability and necessary decision making. V. THE PUBLIC SECTOR PERFORMANCE DEVELOPMENT POLICY LOAN A. OPERATION DESCRIPTION 70. The proposed DPL, in the amount of US$20 million, is the second and last in the current series of annual programmatic Bank operations in support of the government's public sector reform program. This operation builds on the reforms supported by the last DPL in this series, which was approved by the Executive Board in March 2012. The DPL series continues to focus on those reforms that can be completed in the short term while building the necessary foundations for broader reform in the medium term. To date, good progress has been made in implementing most of the actions supported by the DPL series. In many cases, initial commitments included as prior actions under the first operation have now resulted in concrete changes in government policy and programming. The objective of this operation is to continue to support the trend of these changes. The DPL series is aligned with the government's budget cycle, which is the primary vehicle used by the government to introduce new policy initiatives. 71. The development objective of the DPL programmatic series is to support improvements in the performance of the public sector in Mauritius by assisting the government to implement the following three reform pillars: (i) strengthening services to 22 support and empower the most vulnerable; (ii) streamlining trade regulations and processes; and (iii) improving human resource management in the civil service and the monitoring of SOE performance. Table 3 presents the proposed prior actions for this DPL, along with a comparison of how these prior actions have evolved from the indicative triggers presented in DPL1. Annex 1 presents the policy matrix for the overall DPL series. Box 2: Good Practice Principles on Conditionality Principle 1: Reinforce ownership. The proposed operation is rooted in the government's reform program as laid out in the President's address of 2012 and Budget Speeches. The sectors selected for the DPL series were proposed by the government, and the Bank endorses their relevance in terms of their potential impact on growth and equity. Furthermore, the government's commitment to these reforms is demonstrated by the quick endorsement by the Cabinet of the proposed prior actions for the operation and the steady implementation of the Cabinet measures. Principle 2: Agree up-front with the government and other financial partners on a coordinated accountability framework. In line with the government's request and the World Bank's Africa Strategy, the DPL series seeks to harmonize the policy dialogue and the financing provided by relevant development partners with the government's priorities as much as possible. Regular meetings between all development partners have taken place during the preparation of the DPL series to pool resources and knowledge, and Bank missions are open to participation by all development partners. The government sees the DPL series as an important vehicle for achieving the objective of harmonizing policy dialogue and financing. The proposed prior actions for DPL2 already reflect this desired harmonization and have been discussed with other partners (such as the EU). Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances. The proposed DPL focuses on issues of strategic importance but also on those where the government sees a particular benefit in World Bank engagement and support, for instance, to build consensus among all stakeholders or to overcome capacity limitations. The DPL also reflects the government's particular interest in the Bank's knowledge services and incorporates a rich set of analytical work that underpins the Bank's support for the government's reform agenda. Principle 4: Choose only actions critical to achieving results as conditions for disbursement. The proposed DPL operation has identified a small number of critical activities needed to support reforms in the three policy areas of the government's reform program that are supported by the operation. Principle 5: Conduct transparent progress reviews conducive to predictable and performance-based financial support. The programmatic nature of the proposed DPL series will ensure regular and systematic supervision and preparation of each phase of the DPL series in line with the country's annual budget, which has traditionally been the main vehicle for announcing policy reforms in Mauritius. 23 Table 3: Evolution of Proposed Triggers to Prior Actions for DPL2 Indicative Trigger DPL2 Proposed Prior Action for DPL2 Explanation (at time of DPL I approval) Pillar 1: Strengthening Services to Support and Empower the Most Vulnerable a. Social Protection The NEF Board will approve a strategic plan for The Ministry of Social Integration and The Strategic Plan will include strategies for each each operational pillar as well as a monitoring and Economic Empowerment approves a operational pillar. The government has committed to evaluation framework. Strategic Plan for the National developing a monitoring and evaluation framework Empowerment Foundation. for the NEF but this will only be approved by Q2 2013. The government will approve a proposal to New social protection programs use the The government has decided to increase the coverage improve coverage of Social Aid to the poorest. Social Registry of Mauritius for of the poorest using existing and new programs under identifying beneficiaries, and the Ministry the NEF rather than expanding Social Aid. Enhanced of Social Integration and Economic use of the SRM will facilitate more effective Empowerment adopts a timetable for coordination among government poverty-targeted incorporating existing National programs. Empowerment Foundation programs into the Social Registry of Mauritius. b. Education The Ministry of Education will implement new The Ministry of Education and Human No change curricula, including one for the training of Resources implements new curricula for trainers. pre-vocational education, including one for the training of trainers. Pillar 2: Streamlining Trade Regulation and Processes The government will establish a technical The Cabinet approves elimination of The government has focused on achieving results in secretariat to undertake regulatory impact permits issued by the Ministry of the removal of unnecessary permits. The World Bank assessments (RIA). Industry, Commerce and Consumer has provided capacity-building support to the Protection for six products to further technical secretariat to undertake RIAs as needed. facilitate trade in the country. 24 Indicative Trigger DPL2 Proposed Prior Action for DPL2 Explanation (at time of DPL I approval) The government will make the trade portal public, Adoption by the Steering Committee for The government has made progress on the and the Cabinet will approve a memorandum Development and Implementation of the development of the trade portal but, due to detailing the proposed functional model for the single window of a functional model for unanticipated technical complexities, it will not be single window. the single window. ready until June 2013. The government will adopt a prescribed schedule The government adopts a prescribed No change of administrative penalties to apply at Customs. schedule of administrative penalties for Customs. Pillar 3: Improving Human Resource Management in the Civil Service and the Monitoring of SOE Performance a. Civil Service Pilot implementation in MCSAR of an integrated The Ministry of Civil Service and MSCAR has progressed with the development of the HRMIS for the civil service. Administrative Reforms appoints a firm HRMIS but will only be ready to pilot to develop a Human Resources implementation in five institutions by the end of Management Information System at five 2013. pilot sites and adopts revised procedures to reduce the time required to amend schemes of service from six months to four months. b. Public Enterprises Preparation of reform plans of six non-performing The Cabinet has endorsed the The OPSG has focused in 2012 on approving SOEs initiated by the OPSG. implementation of the restructuring plans restructuring plans for SOEs where consensus exists. for the National Transport Corporation In parallel, six more restructuring plans are being and Business Park Mauritius Limited. prepared for approval in 2013. The Office of Public Sector Governance The OPSG is now able to provide reports on SOE also provided a report on State Owned performance based on the Parastatals Information Enterprises sector performance. Management System (PIMS). 25 B. POLICY AREAS B.1 Strengthening Services to Support and Empower the Most Vulnerable 72. Although poverty in Mauritius, as measured in 2007, is low there is concern of broadening income disparity in recent years. A new household survey to be published in 2013 will update the poverty analysis last carried out in 2007. In 2007, the number of poor represented only 8.5 percent of the total population, equivalent to about 106,000 people,12 many of whom lived in concentrated pockets of poverty, small slum communities consisting of 20 to 40 households. Yet, while poverty is relatively low, there are concerns of widening income disparity in recent years. 73. Promoting inclusion and social cohesion continues to be a key element of the Mauritian development model. The government has renewed its efforts to ensure that economic growth is more balanced and equitable. This proposed DPL series supports these objectives as laid out in the new government program Moving the Nation Forward by focusing on: (i) restructuring the social protection system to make it better targeted and more cost-effective and (ii) improving education outcomes, especially for the poorest households. These reforms remain important not only for ensuring that Mauritius' development leads to equitable outcomes but also for ensuring that Mauritius has effective safety nets in place as it enters a period of considerable economic uncertainty. Social Protection 74. The Government of Mauritius invests significant resources in an array of social assistance programs to support the poor and help them to rise out of poverty. These include multiple cash and in-kind programs, active labor market programs, community interventions, and social care services. The most important government programs to reduce poverty are Social Aid and the various programs under the National Empowerment Foundation (NEF). Expenditures on each of these programs are about 0.2 percent of GDP annually. Social Aid is a means-tested program providing cash and in-kind benefits to specific categories of eligible households. The NEF is a not-for-profit, government-owned company under the aegis of the Ministry of Social Integration and Economic Empowerment (MoSIEE). It delivers programs that provide training, job search assistance, and an array of services targeted to households in the geographical pockets of poverty, including support for needy students, remedial education, community development programs, and housing programs. 12 As measured by the relative poverty line, which defines the poverty line as half of the median household income per adult equivalent. 26 75. The government's Social Protection Review and Strategy (2010) pointed out that Mauritius is not realizing the greatest possible benefits from its significant investments in social assistance. First, it continues to spend most of its resources on untargeted subsidies and benefits. The largest of these is the universal pension, accounting for around 3.1 percent of GDP or 90 percent of all social assistance spending. The government also subsidizes the price of rice, flour, and cooking gas, and, except for the rice subsidy, the distributional incidence of these subsidies is regressive.13 Figure 2: Social Aid Payments Second, social assistance is very by income decile, 2006/2007 fragmented, which results in considerable o administrative inefficiencies, particularly 45 in programs that aim to empower the poorest and provide cash transfers. Third, in those targeted programs, coverage of the poorest is quite low. For example, Social Aid covers only around 8 percent of the poor, and significant amounts of benefit are paid to those who are not poor, 1 3 4 579 with around 40 percent of benefits going Source: Household Budget Survey, 2006/2007 to those outside the poorest quintile (see Figure 2). In the case of Social Aid, this is as a result of categorical targeting that is not always well aligned with poverty as well as the small size of the program relative to the scale of need. Finally, the monitoring and evaluation of social assistance activities is weak, which means that the government is unable to assess the effectiveness of programs or take any corrective measures. 76. The government's medium-term objective is to transform its social safety net into a more effective and efficient system to empower the poor and vulnerable to rise out of poverty. Given the political difficulties that might be involved in any attempt to reform untargeted subsidies and benefits, the government is focusing first on reforming its targeted programs. The government began by restructuring the NEF with support from the first operation in this DPL series. As discussed below, the restructuring has progressed well. Also, as a basis for improving the monitoring of both Social Aid and NEF programming as well as improving coordination and increasing impact, the government launched the Social Registry of Mauritius (SRM), another prior action in the first operation in this series. The SRM is an integrated management information system that provides comprehensive information on existing and potential clients of social assistance programs with the aim of increasing coordination among the many different programs. The government now intends to consolidate the realignment of the NEF and to continue to bring new and existing programs into the SRM. 77. The government is focusing on reducing errors of inclusion to improve the delivery of Social Aid. In September 2012, the World Bank produced a policy note outlining options for reducing errors of inclusion and exclusion in Social Aid. The policy note made a number of recommendations for reducing errors of inclusion including: (i) making home visits by social security officers more efficient to reduce fraud; (ii) linking the SRM with other government databases to tighten the process of verifying household declarations of 13 These subsidies are financed by the State Trade Corporation, a parastatal in charge of importing fuel products, which also subsidizes imports of flour and rice (13 percent of total rice consumed), which are major staples for poor households. The combined subsidies represented around Rs 700 million (around US$23 million or 0.2 percent of GDP) in 2011. 27 wealth; and (iii) including assets as well as incomes in the means test to assess household means more accurately given the high level of informality in the economy. The government broadly accepted these recommendations and is now considering how best to implement them. In particular, it is developing a new proxy means test for Social Aid that will use data from the upcoming national household budget survey. 78. Rather than expanding Social Aid to cover more of the poor (a tentative trigger of this operation), the government is now looking for alternative programs to provide income support to the poor. The World Bank's policy note also proposed reducing errors of exclusion by removing the current categorical method of assessing eligibility and replacing this with a simple income cut-off. This would have had the effect of expanding Social Aid to cover more of the poor. The government's response was that at this time it sees the principal function of Social Aid as being a last resort safety net program for those who cannot be "empowered" to rise out of poverty. Many of those currently excluded from Social Aid are working poor, and the government prefers to use other programs to provide support to these households. One such program that was announced in the MNF in April 2012 and was elaborated in the November 2012 Budget Speech is a new conditional cash transfer (CCT) program that will require recipients of a child benefit transfer to ensure that their children attend school. The government pointed out that this new program complements several other ongoing initiatives managed through the NEF. Although the new CCT program has yet to be rolled out, this approach appears reasonable, and the World Bank has therefore focused the dialogue for this DPL on the further consolidation of the SRM. (i) Restructuring of the National Empowerment Foundation 79. The NEF was created when several separate programs were amalgamated, including the National Empowerment Program (NEP), the Trust Fund for Social Integration of Vulnerable Groups (TFSIVG), and the Eradication of Absolute Poverty (EAP) program. In 2010, responsibility for the NEF was transferred from MoFED to the newly established MoSIEE. In 2010, the NEF assisted approximately 3,500 participants in different labor market programs, 2,500 families with housing and other support, 18,000 students by paying for fees, tutors, education materials, and other support, and 75 communities with various integrated housing and infrastructure projects. For academic year 2012, some 18,000 students have benefitted from support in terms of school material. Some 1,500 - 2,000 most needy students benefited from educational support in terms of payment of school fees, social accompaniment, meals and transport. 80. After the uncoordinated programs had been brought under the umbrella of the NEF, they still needed to be restructured as a critical first step towards improving their performance. Even though various programs had been brought under the umbrella of the NEF, they continued to operate autonomously and with considerable duplication and overlap, while the NEF itself lacked sufficient planning, administrative, and implementation capacity. As a result, the NEF was unable to achieve its monitoring targets. Although budget execution improved from less than 50 percent in 2010 to 85 percent in 2011, the lack of meaningful program-based budgets continues to hamper effective implementation. To respond to these challenges, the NEF Board of Directors has now reorganized the NEF into three functional pillars within one coordinated structure: (i) child and family development; (ii) community empowerment; and (iii) placement and training. NEF staff has now been reassigned in 28 accordance with this new structure. As part of the proposed reforms to the NEF, the government has reviewed the focus and targeting of the Placement and Training Program (the NEF's largest program) to ensure that it is effectively serving those with less education and that it is a net creator of jobs. This objective has therefore been adopted as a results indicator for this operation so the improved performance and targeting resulting from the NEF's reforms should lead to a larger number of people with less than a secondary school certificate accessing the Placement and Training Program. 81. While the new NEF structure will improve service delivery, there was a need for a comprehensive strategic plan to guide the organization. The organizational reforms implemented to date are already bearing fruit. Previously overlapping activities have been consolidated under the new pillars. For example, the provision of different types of education allowances to targeted households is now consolidated under the child and family development pillar. The NEF re-organization also introduced the concept of case management, thus giving poor households a primary contact person within the organization and helping to ensure the provision of a coordinated set of NEF services that meets their needs. Field staff has been reorganized along these lines, with caseworkers reporting to case supervisors. Case supervisors report to project coordinators responsible for each district. Each zone comprises of three districts is placed under the management of a program manager. This structure is now also being used to generate community-based project proposals to drive the development of the 2013 budget. Now that the NEF is streamlined with a more logical operational structure, NEF managers have developed a comprehensive strategic plan for the organization, after widely discussion with civil society organizations. Both the new strategy and the new operational structure should then significantly improve program implementation and budget execution. 82. Ensuring the rigorous monitoring of NEF interventions will be critical to providing assistance that meets clients' needs in a cost-effective way. The NEF lacks the capacity and systems to gather the necessary evidence on the performance of programs that is needed to inform policymaking. It particularly lacks a systematic and rigorous monitoring and evaluation (M&E) system. While an M&E unit has been included in the new NEF structure, there is still no overarching framework for M&E. The NEF is currently staffing the new M&E unit and is receiving technical assistance from the UNDP to build the capacity of these personnel. The MSIEE has now made arrangements to bring on board further technical assistance to support the development of a comprehensive M&E plan for the organization, which should be finalized during the course of 2013. Prior Action for DPL 2: The Ministry of Social Integration and Economic Empowerment approves a Strategic Plan for the National Empowerment Foundation. (ii) Further Consolidation of the Social Register ofMauritius 83. The government introduced the Social Register of Mauritius (SRM) in early 2012 to enable the collection of more and better information about the most vulnerable. The objective of the SRM is to collect more comprehensive information about social protection clients. Having started with the Social Aid and NEF clients, the SRM will now be expanded to cover other targeted programs in Mauritius, resulting in a nationwide dynamic database that will be a key policy design and planning tool as well as enabling more effective poverty 29 monitoring. This "single registry" approach has helped many countries to improve monitoring and integrate all of the programs delivering services within their social protection systems. Clients register in the SRM at local social security offices regardless of which programs have screened them. To date some 11,693 families have been registered, thus reaching the goal set for 2012 by the DPL series.14 The initial focus has been on registering Social Aid beneficiaries in the SRM. In June 2012, the Cabinet issued a decision indicating that all new poverty-targeted programs must use the SRM to identify their beneficiaries. It is now been piloted for use in two new government programs implemented by the NEF - a social housing scheme and subsidized access to cr&ches. The government has used the SRM to register all potential beneficiaries and to apply a proxy means test (PMT) to registered households to determine their eligibility for these two new programs. This screening process using the SRM has now been completed, and the NEF is now moving forward with implementing the programs. The use of a PMT for targeting, rather than simply relying on a traditional means- test, promises to make targeting more accurate in a country where informality remains relatively high. The experience of using the SRM as an improved targeting tool for social protection programs further demonstrates the potential efficiency gains that could result from the widespread adoption of this tool. 84. The progress made to date has demonstrated the potential of the SRM but more needs to be done. The registration of all Social Aid beneficiaries and the use of the SRM for registering and screening beneficiaries for the new NEF programs demonstrate the potential of the SRM, but more needs to be done to make it an effective platform for targeting and linking different government programs. The incorporation of the core existing NEF clientele into the SRM has been delayed because of IT compatibility issues and poor coordination between the NEF and the Ministry of Social Security, National Solidarity, and Reform Institutions (MoSS). With the facilitation of MoFED, the remaining bottlenecks have now largely been overcome, and the MoSIEE has developed an action plan and a clear timetable for ensuring that all existing NEF beneficiaries are registered in the SRM. Prior Action for DPL 2: New social protection programs use the Social Registry of Mauritius for identifying beneficiaries, and the Ministry of Social Integration and Economic Empowerment adopts a timetable for incorporating existing National Empowerment Foundation programs into the Social Registry ofMauritius. Education 85. Education opportunities have significantly expanded over the last decades, but Mauritius lags behind other middle-income countries in most education indicators and outcomes. Although the goals of universal access to primary education and gender parity in enrollment has been achieved, the major challenge in the area of primary education remains the low quality of learning achievement and the large number of students who do not move up to the secondary education level. Recent increases in public spending on basic education have had only limited results. Total spending on education as a percentage of GDP increased from 3.7 percent in 2005/06 to 4 percent in 2010, but pass rates and retention rates at all levels did not change significantly during this period. Moreover, Mauritius is significantly 14 Sixty-one percent of those registered in the SRM are women, reflecting the focus on female-headed households in the current categorical targeting of Social Aid. 30 underperforming in terms of its students' learning achievements. According to the 2009 Program for International Student Assessment (PISA) results, only 53 percent of students in Mauritius had the most basic proficiency in reading, and only 50 percent of students were found to have mastered mathematics at or above the baseline level needed to participate effectively and productively in life.15 This puts Mauritius among the lowest OECD comparators for each of these indicators. 86. The failure rate at the Certificate of Primary Education (CPE) level has been consistently high, and learning outcomes at the end of primary education are unequally distributed. About 31 percent of children of primary school age failed the CPE in 2010, with the percentage of unsuccessful boys far exceeding that of girls (37 percent compared with 26 percent). Education outcomes are distributed unequally, which is most evident in the low CPE pass rates in the 28 ZEP (Zone d'Education Prioritaire) schools, which are often located in the poorest areas. Only 36.2 percent of ZEP school students passed the CPE in 2010 compared with a national average of 68.5 percent. Two factors lie behind this disparity in results. First, students from poor families live in a considerably more challenging social environment than those from better-off families. According to the 2009 PISA results, Mauritius is second only to Chile in between-school variance in reading performance. Second, competitiveness within the educational system is driving parents to rely heavily on private tuition to improve their children's education. In 2008, more than 85 percent of parents had paid for private tuition. Private tuition has become a substantial cost for families, and it is likely that the poorest families have the greatest difficulty in affording it. The government has taken some measures to alleviate the financial burden on the poorest households, including providing subsidies for transportation, textbooks, meals, and examination fees. In 2010 it launched an Enhancement Program that aims to replace private tutoring with supplementary classes for fourth grade students. However, these measures have had little effect so far on the CPE pass rate in ZEP schools, which has remained stable since 2006. New initiatives continue to be introduced. From 2013, the government will launch a new conditional cash transfer for poor households that will require recipients to ensure that their children attend school throughout the primary level and that they pass the CPE. 87. Learning opportunities for those who fail the CPE are limited to a pre-vocational stream, which has not been able to meet the needs of the latter. Passing the CPE is a prerequisite for entering general secondary education, and pupils who fail the CPE twice must drop out of the general education stream and attend pre-vocational classes. About 7,200 pupils, about one-third of the cohort, attended pre-vocational education in 2011, down from 9,500 in 2007.17 About 70 percent of enrollments were in private secondary schools, which are subsidized by the state. Moreover, attendance in pre-vocational education is marked by a strong gender bias and two-thirds of enrollees were male in 2011. The poor performance of pre-vocational education is evidenced by high dropout rates, averaging 24 percent of total enrollments over the past five years, as well as by the failure of a large number of students in the pre-vocational stream to move on to technical and vocational education and training 1 The PISA report noted that there was no statistically significant difference in the performance of boys and girls in mathematical literacy, but girls outperformed boys in scientific literacy. 16 Ministry of Education and Human Resources (MoEHR). 17 This figure refers to the total number of students in pre-vocational education. Around 2,600 students currently enter pre-vocational education each year (Ministry of Education and Human Resources, 2011 Statistical Yearbook). 31 (TVET).18 This poor performance can be attributed to: (i) a lack of teacher training in pedagogical skills, especially with regard to students with learning difficulties and (ii) limited access to learning and teaching materials and the inadequacy of the curricula. Improving the performance of the pre-vocational education stream would, therefore, help to meet the learning needs of the poorest and to reduce gender inequality in learning achievements. 88. Redressing unequal education outcomes is essential to break the vicious cycle of poverty. According to 2006/07 data, (relative) poverty incidence is more prevalent among households headed by people with an educational attainment lower than the CPE (two-thirds of the poorest households are headed by people who did not pass the CPE).19 Children belonging to these households face significant challenges in accumulating human capital and are likely to inherit the vulnerability that exists in their households. This is reflected in the significant share that those without a lower secondary education represent among the unemployed (62 percent of the unemployed only have a primary education, and 22 percent of the unemployed have not completed primary education).20 As these figures show, the completion of a lower secondary education is an important predictor of employment outcomes. 89. The government's medium-term objective is to ensure that the most disadvantaged have access to good quality secondary education by improving the performance of pre-vocational education. In response to the challenges raised by low and unequal learning achievements, the government adopted an Education Sector Strategy (ESS) in 2010 with the overall objective of developing a culture of achievement and excellence that will yield the human resources necessary to transform Mauritius into a knowledge-based economy. At the primary education level, the government recognizes that the dual purpose of the CPE - certifying the completion of primary education and selecting students to enter secondary school - coupled with the unequal distribution of learning outcomes is a key constraint to enabling poor students to access economic opportunities and thus also to reducing poverty and stimulating growth. It has re-launched a comprehensive consultation process on the reform of the CPE, to be concluded in 2013, with the aim of increasing the number of students who transition into secondary education. The reform is expected to limit the purpose of the CPE examination to providing a certification to primary education graduates. In the meantime, the government has moved forward with significant reforms to the structure and content of the pre-vocational stream. 90. A comprehensive reform of the pre-vocational stream is expected to facilitate the transition of students from school to work and to increase the number of pre-vocational graduates who progress to TVET. Supported by the first operation under this DPL series, government's approval was obtained for a broad reform that, by increasing retention and enhancing the quality of pre-vocational education, was expected to equip future graduates of pre-vocational education with the basic skills needed to enter the labor market or continue with further education in the TVET stream. The implementation of the reforms began at the start of the 2012 academic year. The main pillars of the reform include: 18 Data from the Ministry of Education and Human Resources, 2011. Concept Paper for the Pre-vocational Reform. 19 All data are from the 2006/2007 Poverty Analysis, Central Statistics Office, MoFED (2009). 20 Statistics Mauritius. 32 * A new curriculum and syllabus that strongly emphasize activity-based learning. To launch the new curriculum, the Ministry of Education and Human Resources (MoEHR) has rolled out a comprehensive teacher training course that focuses on Year 1 and Year 2 of the pre-vocational stream. The MoEHR has also identified eight representative schools to assess how the new curriculum is being implemented and identify any additional resources that might be needed to ensure its success. * A tracking and monitoring mechanism to identify at an early stage those students at risk of dropping out and that will include a dedicated team of specialists that can provide these students with additional support to prevent them from dropping out. * An extension of the pre-vocational cycle to a fourth year by integrating the foundation year21 into the pre-vocational curriculum with the aim of increasing retention rates. The teaching will gradually focus on formal skills that are part of the vocational system as students move through the pre-vocational stream. The first cohort of students will graduate from the new four-year program in 2014. * Anchoring the pre-vocational stream in the national qualification framework by creating a Pre-vocational Certificate recognized by the Mauritius Qualification Authority. The MoEHR expects to reach a final decision sometime in 2013 on the provision of a National Trade Certificate Level 1 for those graduating from Year 4 that will be the foundation that allows students to continue with formal vocational training. Prior Action for DPL 2: The Ministry of Education and Human Resources implements new curricula for pre-vocational education, including one for the training of trainers. B.2 STREAMLINING TRADE REGULATION AND PROCESSES 91. Trade liberalization has been key in increasing the country's competitiveness. With the support of the previous DPL programmatic series (2006-2010), the government reduced tariffs and established a joint public-private sector standing committee to review the regulations related to import and export licenses with a view to eliminating unwarranted barriers to trade. As a result, duties on 87 percent of tariff lines have been eliminated, the highest tariff rate was reduced from 60 percent to 30 percent in 2008/09, the number of bands was reduced from seven to three, and the average Most Favored Nation (MFN) applied tariff is now 3.8 percent. 92. The government's objective is to continue Mauritius' transformation into an open, low tax, and business-friendly economy by further reforming the regulatory framework and removing administrative bottlenecks. In Mauritius, as elsewhere, regulations are increasing as a result of society's demands to regulate markets and control health and environmental hazards. These regulations play an important social role and fulfill key policy objectives, but if they are not properly designed, they can raise transaction costs (in particular cross-border ones) and production costs by making imported products more expensive or by generating red tape. A World Bank report on trade and labor completed in 21 Currently, after completing the three years of pre-vocational education, students follow the one-year National Trade Certificate Foundation Course delivered by the Mauritius Institute of Training and Development (MITD), which, once completed, gives them access to vocational apprenticeships and trade certificates. 33 2010 identified the main weaknesses in the regulatory environment in Mauritius as: (i) a lack of a systematic approach to assessing the costs and benefits of regulations; (ii) a duplication of requirements and a lack of coordination among many ministries and agencies; (iii) excessive reliance on ex-ante inspections rather than random and targeted ex-post controls; and (iv) the absence of any procedures allowing businesses to appeal against regulatory rulings. With the support of this proposed DPL series, the government is addressing these challenges by adopting the following measures: (i) streamlining existing regulations and systematically ensuring that the design of new regulations is conducive to business; (ii) increasing administrative efficiency in trade processes by using IT; and (iii) enhancing the effectiveness of the administrative appeals and penalties of the Mauritius Customs service. (i) Streamlining existing regulations and systematically ensuring that the design of new regulations is conducive to business. 93. To increase transparency and to make the regulatory environment more business-friendly, the Government of Mauritius has improved coordination among the several ongoing initiatives that were set up to accelerate the review of existing business regulations. With the support of the first Public Sector Performance DPL, the government has established a joint public-private business facilitation task force to strengthen the review process for business regulations and other business-related procedures. This body coordinates the current initiatives that are reviewing business licenses and permits, non-tariff-barriers, doing business indicators, and related activities. The task force is composed of high-level representatives from ministries, development partners, the private sector, and the Board of Investment (which also acts as the Secretariat). This task force has five technical subcommittees that cover: (i) morcellement permits, environmental impact assessments, and land conversion permits; (ii) import and export permits and the trade portal; (iii) tourism; (iv) building and land use permits and the e-platform; and (v) utilities. 94. An Inter-Ministerial Committee (IMC) was set up in July 2012 to review the recommendations made by the task force and its technical committees. The first Inter- Ministerial Meeting took place in August 2012 to accelerate the implementation of these recommendations, and some measures have already been implemented. For instance, a silent agreement rule has been adopted for processing building and land use permits at the local authority level, in which these permits are deemed to have been approved two weeks after the effective date of receipt of the application if the local authority has not responded by then. 95. The Board of Investment (BOI) will carry out technical impact assessments on the country's regulations with a view to making them more business-friendly. With the support of this DPL and in line with the government's objective of making regulations more business-friendly, the Bank has built the capacity of various ministries and agencies to conduct periodic impact assessments of their trade regulations under the supervision of the BOI.23 These assessments will provide the task force with information on how these 22 These initiatives include: the Non-tariff Barriers (NTB) Review Committee at the Ministry of Foreign Affairs, Regional Integration, and International Trade, the Committee at the Mauritius Standards Bureau, the Permit Review Committee (PRC) at the Ministry of Business, Enterprise, and Cooperatives, and the Doing Business Initiative led by the Board of Investment (BOI). 23 The methodology for the RIA involves a sequence of analytical steps: (i) stating the problem and how the regulation is expected to address it; (ii) stating feasible policy options (approaches and instruments); and (iii) 34 regulations affect business and competitiveness and will make recommendations for changes that would make the regulations more business-friendly without undermining any regulatory objectives. While the BOI is developing the required expertise to analyze complex regulations, this task will be outsourced to external institutions that already possess adequate capacity. Also, as the BOI works to ensure that existing regulations are streamlined, the government is continuing to assess alternative systematic and formal screening systems to ensure that new regulations do not unnecessarily constrain the business climate. 96. The revised prior action for DPL 2 supports these efforts to make the regulatory climate of Mauritius more business-friendly. To this end, the Ministry of Foreign Affairs, Regional Integration and International Trade together with the Ministry of Industry, Commerce and Consumer Protection, the BOI and the private sector identified a series of products for which import permits will no longer be required, the issuance of permits will be streamlined, or unnecessary procedures will be eliminated. The Cabinet approved the elimination of import permits for 14 products in November 2011, and during 2012 the required regulations to effectively eliminate them have been amended. In the same spirit, the Ministry of Industry, Commerce, and Consumer Protection, together with other stakeholders, has identified six products for which it no longer requires import permits. Accordingly, the ministry has issued regulations to approve the elimination of these six permits. The revised prior action goes beyond what was initially envisaged in the proposed trigger, as it eliminates import permits instead of just setting up a technical secretariat to carry out a regulatory impact assessment. In total, with the removal of some permits by the Ministry of Fisheries, this represents removal of 26 unnecessary permits that have so far been abolished, surpassing the target of 10 that was to be achieved by 2012 under this operation. Prior Action for DPL 2: The Cabinet approves elimination of permits issued by the Ministry of Industry, Commerce and Consumer Protection for six products to further facilitate trade in the country. (ii) Promoting administrative efficiency in trade processes by using IT 97. The government has made great strides in improving trade administration by making use of IT solutions. Mauritius Network Services Limited (MNS) developed the automated TradeNet network in 1994 to allow traders, Customs brokers, shipping agents, and freight forwarders to submit trade documents to the government in a more cost-efficient way. This has reduced the time needed to process declarations and has eliminated the duplication of information requested by different agencies. Commercial banks are also linked to this network, thus enabling businesses to pay their duties and taxes electronically. Since 2001, the Ministry of Industry, Commerce, and Consumer Protection has also been linked to the TradeNet system, which allows traders to submit their documentation to the ministry for online processing. In conjunction with TradeNET, MNS also developed an automated Customs declaration processing system - the Customs Management System (CMS) - to electronically process and approve documents submitted by traders. The Ministry of Business, Enterprise, and Cooperatives (MoBECC) is also linked through the TradeNET system to the evaluating the impact of the regulation on trade and competitiveness and balancing it against the regulation's main objectives. 35 CMS, which makes it possible to accelerate the processing and clearing of documents. However, other ministries and agencies are not yet connected to this network. 98. Although sector ministries publish the administrative requirements for the business operations that fall under their jurisdiction on their websites, this has not been completed in a systematic way. Each ministry has a website, but these are often not comprehensive, user-friendly, or up-to-date. Moreover, the websites of sector ministries only present the trade and business requirements that are under the purview of that particular ministry and do not mention any authorizations that may be needed by other ministries. Scattered information and the lack of coordination among the multiple agencies that issue permits/clearances increase importers' business costs. 99. With the support of the first Public Sector Performance DPL, the government identified all trade regulations and legislation and prepared an action plan to establish a single online trade information portal. This portal has the benefit of increasing the transparency and accessibility of all regulations listed by national tariff line for both importers and exporters. This system, once fully implemented, will facilitate exchanges of information on regulatory policy, thus fostering public participation and stakeholder involvement. A number of steps in the action plan have already been completed. The government has completed a full stocktaking of all relevant import procedures and requirements at the tariff line level. This database complements the tariff dataset that the Customs Department uses to process declarations and includes searchable data on all trade-related laws, regulations, procedures, fees, penalties, and permits/licenses. 100. In parallel, the government has started implementing a "single window" with the support of this DPL series. This will not only provide information but will also fully integrate all trade-related processing systems. In addition to the seamless interoperability between the trade portal and single window IT systems, the single window will also provide information on the advance rulings on tariff classification, on the procedure for lodging appeals against the decisions of border management agencies, on notifications of changes to rules or procedures, on the process by which traders can comment on pending regulatory changes, and on how the government is performing against service standards. 101. The government has detailed the functional model for the single window. This functional model includes: (i) an agreed governance model; (ii) an operating model and modalities; (iii) defined service-level agreements between the participating entities and the external users; (iv) a clear statement of core functionalities; (v) clear implementation timelines; and (vi) an agreed technology plan. A steering committee chaired by a MoFED representative has been mandated by the Cabinet to work on this agenda. The Customs Department has undertaken surveys of all ministries to collect relevant information on business processes in order to prepare the workflow and processes for each ministry, division, and department. The Custom Department validated the data gathered with the assistance of relevant ministries. This process has yielded useful information that has been taken into account in the design of the functional model and in ensuring consistency among departments. 102. The government will subcontract the development of the single window system to Mauritius Network Services Limited (MNS). MNS, of which the government is a shareholder, has created an IT platform that links all of the key government agencies involved 36 in regulating import and export activities. Given this previous experience, the government has decided to ask MNS to upgrade its system to accommodate the functional model for the single window. 103. The government expects that by the end of this DPL operation both the trade portal and the single window will be operational. Although the implementation of the trade portal is on the right track, it has suffered a delay of around six months compared to the timetable envisaged in the action plan. This delay is mainly due to the unanticipated technical and institutional complexities involved in coordinating many different ministries and departments. It is now expected that the trade portal will be fully operational by June 2013. The government expects that by the end of this programmatic DPL series all ministries and government agencies will be connected to the single window, which will streamline the process of obtaining permits and clearances and shorten the time required to obtain them. This will meet the expected result for the DPL series related to this reform. Prior Action for DPL 2: Adoption by the Steering Committee for Development and Implementation of the single window of a functional model for the single window. (iii) Enhancing the effectiveness of the Mauritius Customs administrative appeals and penalties. 104. The current administrative appeals and penalties system at the Customs Department lacks transparency and predictability. Changes are needed to reduce the time and costs involved in settling cases administratively while also increasing Customs compliance. The current appeals mechanism has three stages: first, an internal appeal mechanism (within Customs or the Mauritius Revenue Authority, MRA),24 second, an independent administrative mechanism (an Assessment Review Committee), and finally, judicial proceedings. The Customs Act makes provision for administrative penalties, and the Customs Department makes use of a schedule of Customs administrative penalties. The value of these administrative penalties is determined by the Customs Department on a case-by-case basis and ultimately is settled in each case with the operators involved. The operators would prefer a clear and prescribed schedule of administrative penalties.25 105. A rules-based system is needed to administer administrative penalties, thereby enhancing the transparency, predictability, efficiency, and effectiveness of Customs. With the support of this operation, the government will adopt a prescribed mechanism and schedule of published administrative penalties that will be applied by Customs according to the level of the offense. The government will set out amendments to the Customs Act to include the list of the offences that will be subject to administrative penalties as well as the penalty amounts. The amendments will also give the Director-General of the Mauritius Revenue Authority (MRA) the responsibility for administering this penalty system. The government has held consultations with stakeholders and will continue these discussions before the regulations come into force. This will not only enhance transparency and 24 The MRA is the government's institution in charge of managing and operating revenue organization. This authority deals with all revenue-raising institutions including the Customs Department. 25 In reality, Customs may only have limited capacity to exercise discretion as the penalties imposed are determined on the basis of a detailed set of Departmental Instructions and Guidelines. The Guidelines prescribe the schedule of penalties but are not made available to the general public. 37 predictability and reduce the perception that Customs officials can make arbitrary decisions, but it will also pave the way for "settlement by a ruling"26 as specified in the revised Kyoto Convention. The Director-General will also issue a set of Customs instructions giving more details about the penalty mechanism. This will expedite and decentralize the process of making administrative penalty decisions, thus reducing the costs and time incurred by both Customs officials and traders. The legislation, regulations, and instructions that will create the administrative penalty mechanism will provide a rules-based framework that will expedite rulings, and this in turn will reduce the costs and time of both Customs officials and traders. This framework will also allow traders to make complaints if necessary to the MRA Objections Department, and if they remain dissatisfied, they will be able to bring their complaints to the Assessment Review Committee. 106. With the support of this DPL series, the government has set up an internal appeals mechanism (also called the "objection procedures") within the MRA-Customs in line with the revised Kyoto Convention.27 The government has set up within the MRA a dedicated Objections, Appeals, and Dispute Resolution Department that will cover all taxes and duties, including those administered by the Customs and Excises Department. This was formally adopted by Parliament as part of the Finance Bill in November 2012. This will increase transparency and predictability within the Customs Department, thus ensuring the independence and fairness of the appeals process. It is expected that the time allowed to operators to settle their Customs administrative penalty will be reduced from six to three weeks, which is a results indicator for this operation. Prior Action for DPL 2: The government adopts a prescribed schedule of administrative penalties for Customs. B.3 Improving Human Resource Management in the Civil Service and the Monitoring of SOE Performance 107. The public sector plays a pivotal role in the Mauritian economy as it represents around 25 percent of GDP and 25 percent of all investment. The central government comprises 25 ministries and some 50 departments and is the biggest single employer in the country with around 53,000 public servants (representing 10 percent of all employment and 4.1 percent of the total population). The public sector wage bill will represent 8.8 percent of 26 Revised Kyoto Convention Specific Annex H Chapter 1 Standard 19 and its associated Guidelines. National legislations may empower Customs Departments to administer the settlement of a customs offence. Settlements may take the form of a "compromise settlement" or a "settlement by ruling." A "compromise settlement" means an agreement under which a Customs Department, being so empowered, consents to waive proceedings in respect of a customs offence subject to compliance with certain conditions by the person(s) implicated in the offence. The Government of Mauritius has decided to change from a "compromise settlement" to a "settlement by ruling" in line with best international practices. This will mean adopting a transparent set of rules that will define the procedures and penalties to charge under different customs offences, thus increasing the predictability of the Customs penalty system. 27 Revised Kyoto Convention General Annex Standard 10.4 is clear that "National Legislation shall provide for the right of an initial appeal to the Customs." Its Guidelines explain that "the appeal may be made to the Customs Office responsible for the decision or omission or to a higher authority within the Customs administration." 38 GDP after the implementation of the 2012 Pay Research Bureau28 report, which recommended a 22 percent increase in public sector wages (about 1.2 percent of GDP). This share is in line with what is spent on public sector wages in comparable countries in the region. There has also been a proliferation of state-owned enterprises (SOEs) in Mauritius in recent years. Parastatal bodies and statutory corporations are spread over almost all economic sub-sectors including the utilities and the commercial, economic, educational, welfare, social, and cultural sectors. To date, there are some 150 SOEs and parastatals supervised by different line ministries and departments, employing around 20,000 people or 1.6 percent of the population. This compounds the challenges of reforming the role of the state and strengthening public sector management. 108. Despite Mauritius' relatively high level of development, its public sector is still less efficient than those of other upper-middle-income countries. Many services continue to be costly and of poor quality, in many instances because the public sector is not efficient in delivering services or regulating markets. Throughout the economy, the poor quality of public services and the very limited monitoring and evaluation of these services drives down average productivity. For example, air fares are expensive because of restrained air access among others, which limits tourist arrivals and international business. High telecommunications charges hamper the off-shore financial sector and ICT industry and limit businesses' vital access to the Internet. Electricity is also more expensive in Mauritius than in comparable countries. Water is in short supply. 109. This proposed DPL continues to support the establishment of the building blocks needed to increase public sector efficiency in the medium term. The proposed DPL will assist the government in its efforts to make further efficiency gains and to improve service delivery in the public sector. Because public sector reforms will require consensus between diverse stakeholders and may affect the current political equilibrium, the government will continue to take a strategically incremental approach. As a result, this proposed DPL aims to increase the efficiency of the public sector by supporting the streamlining of civil service management and the strengthening of the coordination and monitoring of SOEs to increase their efficiency and transparency. The Civil Service 110. The civil service in Mauritius is generally well regarded and retains a strong tradition of discipline, but it is also affected by constraints that limit its effectiveness. The government has introduced several important changes to the civil service in the last decade, such as a performance management system, performance-based budgeting, total quality management, International Organization for Standardization (ISO) certification, citizen charters, and public service excellence awards as well as the establishment of reform units within ministries. However, the pace of these reforms has been slow, and there are constraints to moving forward with further reforms, particularly regarding performance management. These constraints include a lack of clarity on the roles and authority of senior staff, uncertainty about agency objectives and targets, and the insulation of senior managers from external demands. All of these factors have a negative effect on senior managers in 28 The Pay Research Bureau carries out a review of public sector salaries and conditions every five years and produces a major report with recommendations on the reform of the civil service. The last report was issued on October 9, 2012. 39 terms of their accountability and their motivation to manage their staff and their agencies, which in turn negatively affects the performance of the civil service. As a result, goals and targets adopted in the budget are not always credible, and the budget does not fully reflect the required allocation of human resources. 111. Senior managers lack the authority and flexibility to be able to get the most value from their staff, which constrains their ability to deliver results. For example, they do not have the authority to recruit their own staff within a given budgetary ceiling, the capacity to manage and strengthen their departmental staff, or the means to motivate staff to deliver within the current arrangements. These factors translate into high staff turnover rates, difficulties in retaining technical specialists, and lengthy recruitment processes, all of which make long-term human resource planning more difficult. As a result, the productivity of individual staff members tends to be low, and workers with much-needed but scarce skills are hard to attract and retain within the public sector. In addition, only a limited amount of key data is available on the civil service, which makes it difficult to manage and monitor the performance of civil servants and of the civil service as a whole. 112. These constraints will require parallel efforts to increase the efficiency and transparency of the civil service and, at the same time, to give senior managers more flexibility in managing their staff while also increasing their accountability. The current reform efforts focus on three main areas: (i) the development of a civil service strategy and a medium-term action plan for reform; (ii) a review of the schemes of service to ease some cumbersome administrative constraints; and (iii) the design and implementation of the Human Resource Management Information System (HRMIS) to generate key information to monitor and manage the civil service, to identify reform goals, and to monitor the implementation of future reforms. 113. Progress has been made in these three areas since the first operation in this DPL series was approved, but it has been incremental. The MCSAR is preparing a human resources reform strategy to address the concerns laid out above and to modernize the management of the civil service. The strategy will be informed by a recent Civil Service Note drafted by the Bank and discussed in a workshop on civil service strategy held in Mauritius in early 2012. It will also incorporate recommendations stemming from the most recent report from the Pay Research Bureau (under the aegis of the Prime Minister's Office) issued in October 2012 that reviewed civil service conditions and salary. The MCSAR expects to produce a first draft of the strategy by mid-2013. 114. The MCSAR has also started to simplify the processing of schemes of service with the aim of improving service delivery and increasing civil service efficiency. Schemes of service are legal documents in the public sector that bind the employee to the employer and specify the qualifications, competencies, skills, and experience required of the job holder as well as the duties and responsibilities of the job.29 The multiplicity of schemes 29 A scheme of service is a legal document that specifies the grade, salary, mode of appointment, qualifications, duties, and responsibilities of an employee in a ministry. It is an integral part of the effective selection and/or promotion of the most suitably qualified personnel within the civil service and is key for ensuring due process. Although the MCSAR is responsible for any changes in schemes of service, each scheme of service must be approved by the Public Service Commission before a vacancy is advertised and filled. In contrast to other Commonwealth countries, in Mauritius, schemes of service have not been simplified or consolidated and are 40 of service and the cumbersome process required to amend them significantly delays the hiring process, makes the service less attractive to qualified staff, and makes recruitment from an increasingly dynamic labor market more difficult. Reducing the total number of schemes of service and simplifying the process needed to amend them will lower transaction costs and align Mauritius' practices with those of other advanced Commonwealth countries. 115. The MCSAR has started to consolidate the many schemes of service and to simplify the amendment process. The ministry expects to reduce the number of schemes of service from more than 2,500 to around 2,375 by December 2013. In line with the recommendations of the Pay Research Bureau report, it is expected that these will be further reduced to around 2,156 by 2014 and to 1,918 by 2015 once all of the recommendations have been implemented. The MCSAR has adopted regulations that reduce the time required to amend a scheme of service from six to four months. The ministry is also developing an e- platform that will facilitate the required consultations with different stakeholders and is expected to further reduce the amendment time to three months by 2015. Furthermore, it is revising the qualifications required for entry-level grades in the civil service so that the schemes of service for such positions will specify only the highest qualification needed, thus further simplifying the amendment process. o Moving forward, while the PRB report takes a relatively conservative approach on the consolidation of the overall numbers and the reduction of time required for the prescription and amendment of schemes of service, it is important for the MCSAR to move expeditiously on this issue. 116. The MCSAR has also made progress on the design and implementation of a Human Resources Management Information System (HRMIS) to facilitate human resource transactions and workforce and performance management within the civil service. The system will also increase the technical capacity in the MCSAR to plan for human resource needs over the medium and long terms. By making data more easily manageable and available, both urgently needed given the challenges in the civil service described above, the HRMIS will also make it easier to manage and monitor civil servants, thus contributing to better civil service performance. This is in line with the government's other efforts to become more results-oriented, such as PBB and the ongoing development of a government-wide M&E system. Once it is fully operational, the HRMIS will integrate all of the payroll and personnel systems throughout the civil service and link them to the Treasury's accounting system. A high-level steering committee, chaired by a MCSAR representative, has been set up to prepare the HRMIS and to ensure its timely implementation.31 specific to every job and grade. The procedure for modifying them entails a complex series of consultations with various stakeholders, and this generally turns out to be an onerous and time-consuming procedure. Also, the proliferation of schemes of service makes it difficult to transfer staff to different positions quickly and efficiently in response to rapidly changing priorities. 30 The removal of the basic qualifications in schemes of service for posts requiring a Diploma or higher qualification would thus: (i) simplify the item "Qualifications" in schemes of service, which presently contains too much detail and (ii) ensure that all candidates who possess a Diploma or higher qualification become eligible to be considered for posts requiring such qualifications irrespective of the lower basic qualifications that they possess. 3 Three working groups have been set up to: (i) propose ways to simplify human resource functions, practices, and processes; (ii) integrate the HRMIS into the Treasury's systems; and (iii) assess the required ICT infrastructure. 41 117. Consultations on the systems requirements of the HRMIS have caused the government to reevaluate the timeline of the project. The government held participatory workshops with all stakeholders in April, September, and November 2012 to discuss the systems requirements of the HRMIS. These discussions made clear the complexities involved in the technical and institutional design requirements of the HRMIS and showed that it was not going to be feasible to make it operational throughout the entire public sector in 2013. Accordingly, these recommendations have been incorporated in the design of the HRMIS, and a new implementation plan has been adopted, according to which the HRMIS will become operational in five pilot sites during 2013. The Cabinet endorsed the pilot sites selected, which are the MCSAR, MoFED, the Ministry of Information and Communication Technology, the Treasury Department, the Public and Disciplined Forces Service Commissions, and the MoEHR. A committee has been formed comprising staff from the ministries in which the HRMIS is going to be piloted. The lessons learned from these pilots will inform the next stage of the HRMIS that will be rolled out to 10 additional ministries or departments during 2014 and will be fully implemented in 2015. To this end, the government has appropriated financial resources in the 2013 budget with additional funding foreseen for 2014 in the MCSAR medium-term expenditure framework. Also, the MCSAR and the Ministry of Information and Communication Technology have finalized the technical and financial specifications for the HRMIS, and in January 2013, the MCSAR selected a public company, State Informatics Ltd, to implement the HRMIS project. Prior Action for DPL 2: The Ministry of Civil Service and Administrative Reforms appoints a firm to develop a Human Resources Management Information System at five pilot sites and adopts revised procedures to reduce the time required to amend schemes of service from six months to four months. State-owned Enterprises and Parastatals 118. Significant efforts have been made over the past decade to reduce the fiscal burden that state-owned enterprises (SOEs) represent.32 These efforts have had a positive impact (the revenues of the 15 largest SOEs grew by 5 percent between 2005 and 2011), but efforts to increase efficiency have been limited. There are many causes for this, which include the complex nature of the reforms, limited accountability, and a lack of transparency in SOE management. As in the civil service, the stubbornly low level of efficiency in SOEs is partly due to the absence of any performance indicators with which to monitor outcomes, which gives managers no incentives to ensure that the SOE performs well or to be accountable for its lack of success. As a result, SOEs and parastatals continue to require significant grants and transfers from the budget to the tune of around Rs 8 billion in December 2010 (3 percent of GDP). They also contribute significantly to public sector debt, in the amount of Rs 20.7 billion or 6.4 percent of GDP in 2011, with around two-thirds of this debt being guaranteed by the government (Table 4). 119. The government now intends to strengthen the financial position of the largest SOEs while increasing its focus on improving service delivery. The SOEs' growing 32 These efforts include, for instance, introducing attrition programs in the agricultural sector, using voluntary departure and early retirement schemes, or consolidating public institutions (for example, closing the Development Works Corporation or centralizing all revenue departments under the Mauritius Revenue Authority). 42 revenues have been accompanied by increasing operating budgets that have undermined the financial sustainability of some large SOEs. Public enterprises and parastatals that provide critical services such as water urgently need to become more efficient or risk impeding further development.33 The government has initiated a plan to improve the overall financial position of SOEs. First, it is divesting from those parastatals about which there is a consensus within the government that they do not address any identified market failure or provide any public goods. These are likely to include casinos and some non-strategic commercial joint ventures. Second, the government aims to shift a larger share of the cost of the services provided by these parastatals to their final users, for example, in the water and public transport sectors. Table 4: Public Enterprise Debt (Rs millions unless otherwise indicated) Jun Jun Jun Dec Dec Dec Dec Dec 2005 2006 2007 2008 2009 2010 2011 2012* Domestic - Guaranteed 6,535 9,010 6,850 6,794 6,842 5,816 4,423 4,519 Domestic - Non-guaranteed 2,519 3,150 3,817 6,666 8,670 5,823 5,106 6,611 External - Guaranteed 8,032 8,304 7,419 5,620 4,605 5,053 8,809 8,904 External - Non-guaranteed 5,326 4,635 3,601 2,542 5,026 3,638 2,364 1,984 Public Enterprise Debt 22,412 25,099 21,687 21,622 25,143 20,330 20,702 22,018 as percentage of GDP 12.1% 12.5% 9.5% 7.9% 8.9% 6.8% 6.4% 6.4% Source: Ministry of Finance and Economic Development Note: * Provisional Figures for December 2012 posted on MOFED Website 120. In 2010, the government established the Office of Public Sector Governance (OPSG) under the aegis of the Prime Minister's Office to provide leadership, coordination, and cohesion to the implementation and monitoring of the SOE reform initiative. As part of the first operation in this DPL series, the mandate of the OPSG was reinforced to: (i) monitor the overall performance of public enterprises; (ii) supervise the implementation of the agreed public enterprise improvement program, especially when targets were not being met; (iii) support ministries and parastatals in implementing performance- enhancing reforms; and (iv) develop the capacity to conduct in-depth supervision of SOEs using monitoring reports. Within this new institutional and legal framework, the World Bank has supported the OPSG in identifying areas where the corporate governance of SOEs has improved, such as the implementation of audit committees and improved internal controls. It has also supported the OPSG as it has adopted improved systems for performance monitoring and as it has reformed specific SOEs. 33 Current inefficiencies manifest themselves in several ways. Some services (such as Internet access) are more expensive in Mauritius than in its competitor countries, there are technical inefficiencies (for example, 50 percent of water is lost from the system), and coverage of some public services remains low (for example, only 25 percent of the population is connected to public sewage networks). One major problem is distortionary tariffs (such as water tariffs), which are often adopted to meet social goals rather than to cover long-term costs. This raises concerns about whether Mauritius can afford the investment and maintenance required to ensure the long- term sustainability of its infrastructure. 43 121. The OPSG recently launched the Parastatals Information Management System (PIMS) and is now implementing a comprehensive performance monitoring framework to improve corporate governance. PIMS will facilitate the collection and standardization of financial and technical data from SOEs. Monitoring will help to identify trends and flag weaknesses, enable mid-course corrections, and provide the basis for putting in place incentives for improvement. The aim of PIMS is to make the monitoring of SOE data more efficient and timely. PIMS will be used in conjunction with the performance monitoring guidelines that the OPSG is developing. This will require the OPSG to confer with the shareholders and boards of directors of each SOE at the beginning of each year to adjust the company's strategy and objectives for the year ahead and to translate these into a set of financial and non-financial performance indicators. 122. For the performance-monitoring framework to be effective, it is essential that SOEs operate within an appropriate corporate planning framework in the form of an agreement between its board and the government (represented by both the OPSG and the relevant ministry). The documents that each SOE will need to prepare as part of its corporate planning are: (i) a corporate objective statement, which is a public document (ideally disclosed in the SOE's annual report) agreed to by the board and the parent ministry that spells out its mission, objectives, core business, strategic direction, and key performance indicators (KPIs); (ii) a corporate plan, internal to the company and provided to the OPSG, that consists of a comprehensive rolling three-year performance plan; and (iii) a business plan, which is a detailed action plan for the first financial year of the corporate plan that lays out the actions and strategies that will be needed to achieve the SOE's objectives, as well as quarterly or yearly benchmarks for the financial statements and KPI targets for each quarter or year (as appropriate). The OPSG will work closely with SOE managers to help them to develop a set of financial and non-financial indicators to measure the company's success in reaching its strategic goals. The World Bank has provided capacity-building support to the OPSG to build its performance monitoring function. 123. The OPSG is also supporting efforts by the SOEs to improve their internal controls, including the creation of audit committees and the implementation of the recommendations of external audit reports. It will be essential to improve internal controls and thus increase the availability of accurate and timely financial statements in order to monitor SOE performance. Enhancing reporting and disclosure will help to build an environment characterized by risk management, accountability, integrity, and efficiency that will decrease the scope for negligence and fraud. Currently, internal control systems in most SOEs are weak. Many SOEs lack adequate internal auditing functions or audit committees, both of which are essential for internal control. Internal auditors are often tightly controlled by management and thus lack the necessary independence and objectivity to oversee transactions, which also hampers the oversight role that is supposed to be played by the Board. The OPSG has highlighted the fact that, for audit committees to be effective, their members must have the appropriate financial expertise and understanding of the SOE's business. While ideally the audit committee, and in particular the committee chairperson, should be comprised of independent directors in order to guarantee independence and objectivity, at a minimum they should at least be non-executive directors. Along with the establishment of the audit committee, SOEs need a system of internal controls that includes a risk management function and ensures that the internal audit team is fully staffed, 44 appropriately trained, and adequately resourced. The Statutory Bodies (Accounts and Audit) Act requires all SOEs to be audited by the Director of Audit or by a registered and licensed auditor. The auditor should be appointed by the Board and approved by the appropriate minister. Strengthened audit committees will help SOE managers to follow up on the findings of both internal and external audits and to strengthen internal controls. 124. The OPSG prepared plans for reforming underperforming SOEs and presented them to the Cabinet for endorsement. The OPSG aimed to demonstrate to all parties (shareholders, managers, the Board, employees, and the public) how each would benefit from the governance reforms that it proposes. All of these stakeholders had to be persuaded of the need for public scrutiny and accountability and for drastic changes in the way in which SOEs are managed and monitored. Therefore, to maximize its chances of success, the OPSG decided to restructure only two SOEs in 2012 and learn lessons from this experience that can be applied to subsequent restructurings. This is in line with the objectives of the current DPL and is also aligned with the requirements for the EU budget support for 2012, which specifies two pilot SOEs to be restructured in 2012. Furthermore, as part of the EU budget support, the Government of Mauritius has committed to restructuring five more parastatals in 2013 and an additional four parastatals in 2014. There is ongoing dialogue between the EU and the Government of Mauritius for the final list of parastatals to restructure, with a particular focus on those that cannot meet their financial obligations towards the government because they are in financial distress. 125. The OPSG's restructuring plans include operational, financial, and governance improvements that key parties - including shareholding ministries and other officials - agree are warranted. The proposed operation provides support for the restructuring of the following two companies in 2012: (i) the National Transport Corporation and (ii) the Business Parks of Mauritius Ltd. 126. The National Transport Corporation (NTC) is the country's primary operator of buses. The company has suffered mounting losses as a result of external factors such as high fuel and internal inefficiencies including the high maintenance costs of its aging fleet and labor costs. To return to profitability, the company proposed to acquire new buses, to implement a "smart card" cashless payment system for passengers, to increase rates, and to reduce labor costs as conductors will no longer be needed as a result of the use of smart cards. The OPSG has helped NTC management to develop a restructuring plan (including the reorganization of the company under the Company Act), the details of which have been endorsed by the Ministry of Public Infrastructure, National Development Unit, Land Transport, and Shipping and by the Cabinet. Government took note of the proposals made in respect of the reorganization of NTC. 127. The 2011 audited accounts show that the revenue of the NTC was Rs 1 billion in that year while its accumulated losses amounted to Rs 402 million. The non-current liabilities of the company totaled Rs 941 million. For 2013, the NTC is forecast to have total income of Rs 1,294 million and a negative cash flow of Rs 88 million, with forecasts of Rs 102 million and Rs 114 million for 2014 and 2015 respectively, as indicated in Table 5. The number of its workforce is around 2,200, with almost 95 percent being covered by private sector labor regulations and the rest considered as civil servants. The implementation of the plan has started with the sale of the NTC's new headquarters in October 2012. The restructuring plan 45 is expected to be implemented over the next three years and will require additional funding from the government of around Rs 570 million, mostly to renovate the aging bus fleet. It also includes a redeployment or early retirement program for civil servants and a comprehensive plan for the rightsizing of its workforce after the implementation of the smart card. As a result of the restructuring plan, the NTC is expected to return to profitability and positive cash flow, as can also be seen in Table 5. Table 5: The National Transport Corporation: Projected Cash Flows and Profits (Rs millions) 2011 2012 2013 2014 2015 2016 Net cash flows - no restructuring 75.9 96.8 -88.4 -101.7 -114.3 -114.8 Net cash flows - with restructuring 75.9 102.7 -15.2 -49.6 16.9 58.3 Profit - with restructuring 75.2 19.7 -41.7 -45.0 45.2 152.4 Source: Government of Mauritius 128. The Business Parks of Mauritius Ltd (BPML) has, through its subsidiary Cyber Properties Investment Ltd, invested in the construction of two cyber towers costing over Rs 2 billion, financed mainly through debt. It has faced financial difficulties ever since its incorporation in 2001 as a result of its indebted and because the low occupancy rate of its business parks did not generate enough revenue to cover its operational and financial expenses. While in recent years the business has recovered, the company is still burdened by extensive debts. Currently, its loans in arrears amount to Rs 600 million. The business plan adopted shows that, after debt restructuring, the company expects to be able to pay off its loan arrears starting in 2013 and to begin to produce positive results (Table 6). Table 6: Business Parks of Mauritius Ltd: Projected Revenue, Expenses, and Profits (Rs Millions) 2013 2014 2015 2016 Total Revenue 336 346 357 368 Total Expenses in. Depreciation & Finance Cost 196.3 194 191.8 191 Net Profit 139.7 152.0 165.2 177.0 Return on Equity 12% 14% 15% 16% Source: Government of Mauritius 129. The proposed prior action for DPL 2 has been enhanced compared to the indicative trigger proposed in DPL 1. Although the indicative trigger under DPL 1 required that reform plans should be prepared for six SOEs, the Bank considers approval of the two restructuring plans reasonable given the importance of these first restructurings in engendering political support for SOE reform and for demonstrating the importance of restructuring other SOEs. In addition, while the proposed DPL 2 trigger presented in DPL 1 called for the preparation of restructuring plans, the trigger proposed herein calls for the approval of the plans by the Cabinet. Finally, the trigger has been aligned with that of the EU's budget support operation, which is currently being prepared. The OPSG has also produced a monitoring report on the overall performance of SOEs using the most recent financial data available. 46 Prior Action for DPL 2: The Cabinet has endorsed the implementation of the restructuring plans for the National Transport Corporation and Business Park Mauritius Limited. The Office of Public Sector Governance also provided a report on State Owned Enterprises sector performance. VI. OPERATION IMPLEMENTATION A. POVERTY AND SOCIAL IMPACT 130. Mauritius has a low rate of poverty, whether measured in relative or absolute terms. In 2006/07, 8.7 percent of the population was in relative poverty, which was equivalent to 106,000 people. Approximately 1.0 percent of the population or 12,000 people live on less than US$1 per day. Inequality in Mauritius, as measured by the Gini coefficient, is low (0.388) compared with other countries in Africa. This reflects the fact that Mauritius has traditionally had a balanced economic development model that favors equality and is a country with a well-developed social welfare system. However, the most vulnerable segments of the population would be most affected by the ongoing increase in food prices because food and beverage expenditures represent around 50 percent of the total expenditure of the two lowest quintiles of the population, although the government has programs aimed at mitigating this impact.34 131. The proposed DPL series is expected to reduce poverty in the following three ways: (i) social protection programs will become more effective at protecting the poor and helping them to rise out of poverty; (ii) widening access to education will help the most vulnerable to find higher-skilled, better paying jobs in the labor market; and (iii) streamlining non-tariff barriers (NTBs) will help to create jobs as NTBs disproportionally affect SMEs (which are major creators of employment in Mauritius) because they lack the financial means to mitigate their cost. The progress that has been made in implementing the reforms supported by the first operation in this DPL series would suggest that these benefits can be realized. 132. Social protection programs will be more effective in protecting and supporting the poor. The programs under the NEF have played a role in mitigating the transitional impact of previous reforms. The Placement and Training Program was the most significant in this regard, with over 6,000 workers having found jobs through this program by 2009. However, in the sectors that benefitted from the program, 80 percent of all of the jobs created were in the ICT sector. As part of the proposed reform of the NEF, the government is reviewing the focus and targeting of the Placement and Training Program to ensure that it is effectively serving those with less education, that it is a net creator of jobs, and that it is rigorously evaluated to ensure that it provides value for money. Moreover, the re-engineering of NEF programming, particularly those programs targeted to households in the 229 pockets of poverty, will ensure that much more effective services are provided to those vulnerable households. The adoption of the SRM will similarly lead to strengthened case management at 34 The State Trade Corporation (STC), a parastatal in charge of the import of fuel, also subsidizes imports of flour and rice (13 percent of all rice consumed in Mauritius), which are major staples for poorer households. In 2011, the combined subsidies represented around Rs 700 million (around US$23 million or 0.2 percent of GDP) and could be further increased by the STC if needed. 47 the household level and to more integration of the services targeted to the poor. Given the concerns noted above about unemployment trends, the Mauritian safety net must be working effectively if increased levels of poverty are to be avoided. 133. Reforms to pre-vocational education will largely benefit the poor. The DPL is also supporting reforms in the education sector. The government plans to significantly upgrade the pre-vocational technical education stream so that this becomes a meaningful activity that can either help students to move forward in their formal education or to acquire the skills and qualifications that will help them to enter the job market. These reforms also aim to reduce the high dropout rate from pre-vocational education, which is 24 percent of those who enroll. The pre-vocational stream currently caters to those who have failed their CPE exams, and, given that failure rates for CPE are much higher among the poorest than among other income groups, this reform will be key to improving education and labor market outcomes for this group. In addition, improving the performance of the pre-vocational stream is expected to contribute to reducing gender bias by improving learning outcomes for boys. 134. Simplifying barriers to trade will further expand opportunities to create jobs. Trade regulatory and administrative costs are a bigger burden for SMEs than for large enterprises. Therefore, streamlining non-tariff measures (NTMs) and eliminating non-tariff barriers (NTBs) are both expected to have a positive impact on SMEs, which will in turn translate into additional employment. This effect became evident after the reforms introduced in 2006, which created a more level playing field between large companies and SMEs, bolstered economic competitiveness, and promoted diversification that translated into strong job creation in the services sector. As a result, the unemployment rate between 2005 and 2008 declined, especially for women. 135. The capacity of Statistics Mauritius to monitor poverty in Mauritius has been strengthened in recent years. Statistics Mauritius has developed a poverty map depicting the poverty rate in each of the 145 administrative regions of the country, which is based on data from the Household Budget Surveys (HBS) and the 2000 Housing and Population Census (HPC). Furthermore, Statistics Mauritius fields an annual multi-purpose survey that can be used to monitor multiple dimensions of poverty including access to basic services, labor market participation, and income poverty. In addition, Statistics Mauritius has launched a new survey, the Survey of Living Conditions, to measure absolute poverty. Also, with support from the UNDP, it is updating measures of absolute poverty. The upcoming release of the data from the latest Household Budget Survey in 2013 will be a powerful new source of information for assessing Mauritius' progress in reducing poverty, especially when analyzed in conjunction with the 2011 national census data. The Bank intends to work with Statistics Mauritius in analyzing the 2013 HBS data. 136. The Social Register of Mauritius (SRM) will further strengthen the capacity of the government to monitor poverty. The government also plans to use the SRM to improve poverty monitoring within programs, starting with Social Aid and programs under the NEF but over time incorporating additional programs into this integrated database. 48 B. ENVIRONMENTAL ASPECTS 137. None of the reforms supported by the DPL series are likely to have a direct effect on the environment, natural resources, or forestry. The reforms affecting SOEs and parastatals will focus on increasing transparency and monitoring the management of public companies but will have no direct relationship with investments in these areas. Historically, the record of environmental management in Mauritius, though not perfect, has been relatively good.35 Furthermore, all development partners recognize the strategic importance of environmental protection, and the AFD, the UNDP, and the EU are all actively providing technical support to Mauritius in this area. C. IMPLEMENTATION, MONITORING, AND EVALUATION 138. The government and the World Bank will meet twice a year to review the progress of the DPL program and to prepare a joint report. MoFED will be responsible for coordinating the supervision and monitoring of the reform program supported by the proposed DPL 2. MoFED will liaise with the appropriate staff in the ministries, departments, and agencies involved. The Bank will carry out periodic monitoring and conduct a dialogue with relevant line ministries and other stakeholders involved in the implementation of the reforms through field missions and through staff based at the Bank's country office. MoFED, as the primary counterpart agency of the operation, will be responsible for providing the Bank with the information required to monitor outcomes in the policy matrix (Annex 1) and for preparing an implementation report every six months to be discussed with the World Bank. D. FIDUCIARY ASPECTS Public Financial Management System and Fiduciary Issues 139. Mauritius has a satisfactory financial management system. The country's fiduciary framework is adequate to support the proceeds of the credit as concluded by the 2010 PEFA report, which noted that: (i) PFM performance had improved since the 2007 PEFA assessment and (ii) 90 percent of all loans and grants received by the government in 2009 were managed using government systems with a few exceptions for loans and grants from China and India. As summarized in paragraph 67, since the publication of the PEFA assessment, the government has designed and has been implementing a PFM Action Plan 2011-13 aimed at further strengthening PFM systems. 140. External auditors have reported no concerns with the audited financial statements of the Bank of Mauritius. The IMF has not undertaken a safeguard assessment on the Bank of Mauritius, but the independent external auditors issued an unqualified audit report on June 30, 2012, and the audited financial statements of the Bank of Mauritius are published on its website. 3 See EU "Mauritius Country Strategy Paper 2008-2013," Annex 3, Executive Summary of the Country Environmental Profile. 49 Funds Flow Arrangements 141. The loan disbursement will follow the World Bank's procedures for development policy lending. The loan will be disbursed in a single tranche upon effectiveness. The loan proceeds from the Bank will be credited to an account that is part of the country's official foreign exchange reserves at the Bank of Mauritius. The rupee equivalent of the loan proceeds will be reflected in the budget to finance budgeted expenditures. The government will provide a letter to the World Bank within 30 days of receiving the loan proceeds written by the Accountant-General confirming that: (i) the accounts used to deposit the loan proceeds are part of the country's official foreign exchange reserves and (ii) the rupee equivalent of the loan proceeds has been reflected in the budget and in the government's accounts on the date reflected. The loan proceeds shall not be used to finance excluded expenditures as defined in Section 2 of the Appendix in the loan agreement. If any portion of the loan is used to finance ineligible expenditures as so defined, the Bank will require the government to promptly refund the amount upon notice. Accounting 142. The accounting of the loan proceeds will be the responsibility of the Accountant- General at the Ministry of Finance and Economic Development (MoFED). Government procedures will be followed to administer and account for the loan proceeds and related payments. Since the control environment is considered to be adequate, no additional fiduciary requirements shall apply. E. RISKS AND RISK MITIGATION 143. The implementation of the proposed reform program entails a number of risks: (i) the challenge of maintaining macroeconomic stability in the face of highly uncertain global developments; (ii) a slowdown in the momentum of reforms; and (iii) limited institutional capacity within the sector ministries to lead and implement the reforms. 144. The first risk is that macroeconomic stability may be affected given the uncertain global economic climate, particularly in the European economies to which Mauritius remains substantially exposed. These global economic uncertainties represent a significant threat to a small open economy such as Mauritius. While the impact of the global economic slowdown has been partially contained so far and GDP growth was around 3.4 percent in 2012, a more protracted and extended slowdown could further deteriorate Mauritius' economic prospects primarily on two fronts - the fiscal position and the current account deficit. Slower global economic growth is already depressing domestic growth and tax revenues, thus making it more difficult to finance the government's priorities. Despite this difficult environment, the government is consolidating the fiscal deficit and reducing public debt. Current account deficits, although high, have been adequately financed, mostly by high FDI and inflows to the financial sector. However, this could quickly reverse if international financial markets were to deteriorate. Finally, the concentration of the country's exports on a few markets (Europe) and products (tourism and textiles) and its large share of imported commodities could further increase the current account deficit. 50 145. In 2012, the economy proved its resilience, and the government had the means to cope with external economic uncertainties, but a firm commitment will be needed to rein in public expenditure if a more substantial slowdown materializes. Overall, the Mauritian economy proved its resilience in 2012 with 3.4 percent GDP growth despite constraints to growth on the external front and a less expansionary fiscal policy than was expected. Furthermore, on the external front, the increasing levels of foreign exchange reserves (projected to be at six months of imports in the medium term) are an additional buffer against a potential deterioration in the balance of payments. Mauritius' floating exchange rate can also facilitate the correction of external imbalances in the medium term. The recent trend towards reorienting exports towards new markets (particularly Africa) will also help. On the fiscal front, the slowdown in the growth of public revenues is being more than compensated for by the containment of public expenditure, with a reduction of the fiscal deficit and public debt. If revenues should dip, this would make it necessary to accelerate efficiency gains in the public sector and to use the remaining balance in the National Resilience Fund that was created in 2011. The government is also extending the maturity of the public debt, further reducing roll-over risks as the majority of debt is domestic and there is currently excess liquidity in domestic capital markets. 146. The second risk is that potential political constraints can affect the pace of the reform program at a time when the need is high. There are few champions for strong reforms, and demand for reform by other stakeholders is limited. This reflects the fact that many of these new reforms will have redistributive effects, meaning that they sometimes eliminate the rents, subsidies, and privileges of certain groups with vested interests. The government may find it difficult to overcome these groups, some of which are well-organized and influential. This is particularly true since many of the reforms may only pay dividends in the medium term while their costs will be evident in the short term. There is no time for complacency when considering the global economic uncertainties and the structural constraints to economic growth and poverty reduction that are becoming binding. 147. The approach taken in this DPL series aims to mitigate this risk by supporting reforms for which a consensus exists, helping to put in place the building blocks to expedite the reform program over the medium term. The DPL takes a strategically incremental approach that aims to produce results in the short term that can create demand and momentum for further bolder reforms. This DPL series takes a pragmatic approach by supporting reforms that are backed by a broad consensus and that will yield some immediate benefits (for example, in trade and social protection), while laying the necessary foundations required to accelerate other reforms in the future. The DPL series aims to do this by being selective and by supporting policy actions that will create and strengthen: (i) public sector management systems (such as the SRM, the PIMS, the HRMIS in the civil service, and the trade portal) that can provide the government with the tools necessary to achieve efficiency and transparency gains and define appropriate reform options and (ii) institutions that can coordinate and consolidate reform initiatives (such as the National Empowerment Foundation, the Office of Public Sector Governance, and the Business Facilitation Task Force). Furthermore, the government's emphasis on strengthening the safety net, primarily by enhancing NEF programs, will provide the most vulnerable with immediate support, thus reinforcing the government's objective to develop more balanced economic growth and building the momentum for additional reforms. 51 148. The third risk is that institutional constraints, including limited capacity in sector ministries, might make it more difficult to effectively design, implement, and monitor the reforms. These institutional constraints and the potential political constraints can limit the effectiveness and progress of reforms. While previous reforms were led and coordinated by MoFED, the current reforms are being overseen in most cases by the sector ministries. This involves a wider range of stakeholders, which requires additional effort to build consensus around the reform agenda. However, most sector ministries, particularly those that are newly created, lack the institutional capacity to build this consensus or to design and implement these sector reforms. In addition, after a period of ambitious reforms, some stakeholders both within and outside government are feeling a certain reform fatigue and a reluctance to change. 149. The Bank is helping the government to mitigate this risk by involving specialized Bank staff in the DPL dialogue on selected areas and by encouraging a public debate by publishing articles and technical notes. Additionally, the DPL itself is a catalyst between the different ministries involved in the reform program, thereby enhancing coordination. Also, the Bank's portfolio in Mauritius is designed to strengthen capacity in a way that is tailored to the needs of a middle-income country. First, this is being achieved through analytical work coordinated with other development partners in order to leverage limited resources to support selected capacity building in priority areas. Second, the portfolio includes strategic technical assistance on selected governance areas, such as on capacity strengthening in anti-corruption. Furthermore, a services agreement for Reimbursable Technical Assistance (RTA) signed by the Bank and the government is available to further strengthen institutional capacity in line ministries where needed. Overall, however, the major challenge in the implementation of the reform program is the limited capacity of the sector ministries to coordinate multiple stakeholders, which will only be surmounted by additional capacity building. 52 ANNEX 1: OPERATION POLICY MATRIX Project Development Objective: To support improvements in the performance of the public sector in Mauritius by assisting the government to implement the following three reform pillars: (i) strengthening services to support and empower the most vulnerable; (ii) streamlining trade regulations and processes; and (iii) improving human resource management in the civil service and the monitoring ofSOE performance. Medium-term Policy Actions Expected Results Baseline -Responsible Objectives DPL 1 DPL 2 Indicators (2011) 2012 2013 Entity (prior actions 2012) (prior actions 2013) Pillar I: Strengthening Services to Support and Empower The Most Vulnerable a. Social Protection Making the social safety The issuance of a new organizational and staffing The Ministry of Social Number of people 912 1,000 1,200 NEF/MSIEE net a more effective, chart for NEF which shall have been approved by Integration and with less than a efficient, and sustainable MoSIEE, reflecting the new institutional structure Economic secondary school system that provides a of NEF, and with separate departments for a) Empowerment certificate (SC) coherent set of safety net child and family development, b) community approves a Strategic placed in Placement services to empower the empowerment, c) placement and training, and d) Plan for the National for Training poor and vulnerable to monitoring and evaluation. Empowerment rise out ofpoverty. Foundation. Cabinet approval of a memorandum giving New social protection Number of 0 10,000 13,000 MoSS/NEF details of a proposal and action plan for the programs use the Social households in the establishment of SRM. Registry of Mauritius SRM for identifying beneficiaries and the Ministry of Social Integration and Economic Empowerment adopts a timetable for incorporating existing National Empowerment Foundation programs into the Social Registry of Mauritius. 53 Medium-term Policy Actions Expected Results .Baseline -Responsible Objectives DPL 1 DPL 2 Indicators (2011) 2012 2013 Entity (prior actions 2012) (prior actions 2013) b. Education Improving learning Cabinet approval of a concept paper for The Ministry of Percentage of 72.2% 73.2% 74.2% MoEHR outcomes and ensuring prevocational education reform, giving details of Education and Human students entering access to good quality proposed changes to existing learning and Resources implements Year 1 and general secondary institutional arrangements, including extension of new curricula for pre- completing the pre- education for all, prevocational education to four years, revision of vocational education, vocational education especially the most curricula, introduction of teaching and learning including one for the cycle disadvantaged. methods to promote retention, and acquisition of training of trainers. core basic skills and technical competencies. Pillar II: Streamlining Trade Regulation and Processes Making the regulatory Establishment of a joint public-private Business The Cabinet approves Number of n/a 10 30 MoFED framework more Facilitation Task Force, giving it a mandate to elimination of permits regulations on which transparent and more review existing systems and processes, and issued by the Ministry a decision is taken business friendly, and streamline regulations, governing trade and of Industry, Commerce after review eliminating investments, with a view to removing bottlenecks and Consumer administrative and creating a business-friendly environment. Protection for six bottlenecks to enhance products to further competitiveness. facilitate trade in the country. Cabinet approval of a memorandum, giving Adoption by the Number of 0 All MFA details of proposed modalities and action plan for Steering Committee for ministries involved the establishment of a comprehensive and up-to- Development and in issuing date trade portal. Implementation of the certificates/ single window of a permits/clearances functional model for the connected with the single window. national single window 54 Medium-term Policy Actions Expected Results Baseline Responsible Objectives DPL 1 DPL 2 Indicators (2011) 2012 2013 Entity (prior actions 2012) (prior actions 2013) Development by MoFED of a draft policy paper The government adopts The amount of time 6 weeks 3 weeks 3 weeks MRA - on the proposed establishment within its customs a prescribed schedule of needed to settle the Department department of an appropriate internal appeals administrative penalties Customs of Customs mechanism that complies with the requirements for Customs, administrative of the Kyoto Convention, giving details of the penalty amount proposed legal and institutional framework, and operating guidelines and procedures, governing such a mechanism. Pillar III: Improving Human Resource Management in the Civil Service & Monitoring of SOE Performance ____________________a. Civil Service Improved human Submission to Cabinet, by MSCAR, of an Ministry of Civil Gradual reduction of Processing Processing Processing MCSAR resource management in information paper giving details of plans to Service and processing time time: 6 time time the public service by streamline Schemes of Service and expedite the Administrative Reforms relating to the months reduced reduced streamlining procedures process of review, modification and consolidation appoints a firm to prescription of from 6 from 5 and processes relating to of such Schemes of Service, based on adequate develop a Human schemes of service months to months to the prescription of consultations with civil service unions and other Resources Management and in the number of 5 months 4 months. schemes ofservices and stakeholders, and reflecting the outcome of such Information System at schemes of service. the Human Resources consultations. five pilot sites and Number Consolida management information adopts revised of tion of system procedures to reduce schemes Consolidat schemes the time required to of service ion of of service amend scheme of above schemes extended service from six months 2,500 of service to other to four months. piloted in sectors of MCSAR the civil service resourcemanagement in nfob. State-owned Enterprises 55 Medium-term Policy Actions Expected Results .Baseline Responsible Objectives DPL 1 DPL 2 Indicators (2011) 2012 2013 Entity (prior actions 2012) (prior actions 2013) Improving the Cabinet approval of a memorandum, giving The Cabinet has Number of SOEs 0 5 25 OPSG monitoring ofSOE details of the revised mandate of OPSG to a) endorsed the included in the performance and reform monitor the overall performance of SOEs; b) implementation of the annual performance progress. prepare quarterly reports; c) support line restructuring plans for report prepared by ministries in the preparation and implementation the National Transport the OPSG and of performance improvement plans; and d) Corporation and published on the supervise the pace of SOE reforms as approved Business Park OPSG website by Cabinet, reporting back to Cabinet with Mauritius Limited. The proposals for corrective measures as needed. Office of Public Sector Governance also provided a report on State Owned Enterprises sector performance. Notes: a/ The baseline value for this results indicator refers to 2010 56 Annex 2: Letter of Development Policy Office of the Vice-Prinne Minister, Minister of Finance & Economic Development ornentHou~se,Po,1Leas, RepubiwofMaritius Tel (230) 2012431 Fax :230) 213 6450 mRFfrtkm0 ssEmai: muil@mnailgov.mu In epyple~asegve _C lä924B Date: 15pebruar2013 Mrs HaeyBrid CoiuntryDrector f-rManritis AicaRgmo,WorkiBank ReeAndrialindy HltePotate :44140 Arntanarmivo uMaanrnr DearMadam Secud Privata Sectur Compellveness Developme.t Pelky Lmon and Seccnd Public Seder Development Polkyltem-an-arltlslawttaien tO Serroeer to negotte 1 thank you for inviting the Government of Mauritius tonegotiate for the proposed Seconed Private Se ntoCaietitiveness Development Policyloan jutheamiount 0rUS$ 15mTiRlion and the proposed Serond Public Sector Development Polic Iäan In the amunt af US 20 milion and I would like to conirm that Februry 20. 2013 Ls convenient for the Maurdan Delegation to negotiate te Publc Setorand Pivate Secer LeveopmentPoy hans. We haenoted the mntent of the dihssions as partoftle negotiation. The Mauritian Delegtion wil le headed by Mr G. ]usan, Acing D~iror and be vll sign the Minuste of Negoiatlersoene goiations haeconcluded Inthe ame of theltepulicofMaordtus. Te ist of the Maritian NegotatingTeam isattached The Mauritian authoddes took not of the Bank Policy on Access to Informaion and conrm that we have no objecln to the Bank publdy reksing the Program Doeuments for bott Development Poly Loans and the Letter of Development Policy upon disihuton to dhe Banks eoardofExecutiveDfer.tors. We look fonard to the negotiations, and would like to thank you and your team for their atanceingettings to thissage in thelan process. YcurSncerely, Wkje-P,rmeMinister, Minister fl anad Economic Develhpmeat SCANNED 57 Letter of Development Policy Over the last seven years Mauritius has undergone a series of reforms, with the help of its development partners, to maximise the country's potential to transform itself into a high- income economy. These reforms were designed to enhance the country's competitiveness and to put the economy on a higher growth trajectory whilst creating opportunities for the most vulnerable groups through economic empowerment Whilst the reforms undertaken helped build resilience by reducing macroeconomic vulnerabilities and improving fiscal sustainability, challenges remain due to the continuing diiculties being faced by the global economy. Sustaining the quality and pace of implementation of reforms is, therefore, vital to increase the economy's long-run growth potential and to help reinvent itself in the face of adversity. The 2013 Budget includes a number of measures to support the on-going reform programme, namely, improving the business environment encouraging the adoption of technology, modernising access to innovative public services and implementing an Africa strategy. New impetus has been given to all sectors Including financial services, education, health, tourism, entertainment and shopping, manufacturing and other export-oriented industries, agriculture and fishing and ICT-BPO. In spite of the downside risks and uncertainty prevailing worldwide, latest available information indicate that GDP growth rate was 3.3 percent in 2012. This performance can be attributed to pro-growth policies, sound macroeconomic management, improved public sector governance, and ongoing reforms. Based on the current global economic outlook and policy measures taken in the 2013 Programme Based Budgeting (PBB), the Ministry of Finance and Economic Development is forecasting a growth rate of 4 percent this year- assuming recovery of our main trading partners coupled with diversification of markets and higher implementation rate of budget measures, more specifically those related to public infrastructure projects. Investment rate is likely to rise to around 23.8 percent this year and is mainly driven by the public sector. On the other hand, inflation reached 3.9% by the end of 2012, lower than the 6.5% recorded in 2011. For this year, unemployment rate is likely to remain stable at8 percent with a higher net job creation of around 5,100. Current account deficit will be around 10-11 percent of GDP while the overall balance of payments would remain in surplus. 2012 was an exceptional year for Mauritius whereby Foreign Direct Investment inflows is estimated to have reached some Rs 12 billion , higher than Rs 9.5 billion in 2011. This is among the highest levels of FDI recorded. The implementation of the reform agenda will require the financial and technical support of all the development partners, including the World Bank (WB), the European Union (EU), the African Development Bank (ADB) and the Agence Frangaise de D6veloppement (AFD), the United Nations Development Programme (UNDP) and the International Monetary Fund (IMF). The four pillars of the reform programme namely (1) improving public sector efficiency, (ii) sharpening competitiveness, (iii) improving the Investment climate and (iv) widening the 1 58 circle of opportunities, continue to underpin the country's growth strategy. Government relies on the continued support of the Bank through Development Policy Loan (DPL) operations as an important vehicle for supporting policy reform in Mauritius. While financing is needed, Government values the policy dialogue and technical support from the World Bank. In this context, the second DPL operations will help reinforce Governments medium term reform programme. The Second Public Sector Performance Development Policy Loan (PSP- DPL) of US$20 million will focus primarily on the performance of the public sector while the Second Private Sector Competitiveness Development Policy Loan (PSC-DPL) of US$15 million will put emphasis on the competitiveness agenda. The combination of the reforms proposed by these two complementary DPLs will help improve the country's competitiveness and resilience and prepare the economy for rapid and inclusive economic growth. This letter of development policy broadly outlines how current and prospective reforms will consolidate and extend the gains In each of these areas. A. Improving Public Sector Efficiency Government is well aware of the need to exercise fiscal prudence in the wake of sustained international economic crisis and has laid out measures to improve efficiency in the public sector. Discounted Public Sector Debt as a percentage of GDP has continued its declining path reaching 53.1 per cent GDP by end December 2012 while overall budgetary central government deficit dropped to around 1.8% of GDP last year. Government is relentlessly pursuing the objective of bringing public sector debt as a ratio of GDP to 50 percent by 2018. National Audit Office will be reinforced to produce Interim audit for timely monitoring and the Public Accounts Committee would be empowered to better bring public expenditure under parliamentary controL Public Procurement Act would be reviewed to expedite the implementation of infrastructure projects while providing transparency, as all outcomes of tender exercises will now be displayed as from Rs 5 m, well below the present threshold of Rs 15 m. To ensure Government gets value for money out of its support to the use of Business Development services (BDS) to serve economic growth, a robust system of Monitoring & Evaluation is in the process of being established that focuses on improved results on verifiable indicators, enhanced accountability and impact feedback learning mechanism. Similarly, to help improve human resource management the Ministry of Civil Service and Administrative Reforms (MCSAR) would pilot the establishment of the Human Resource Management Information System in six organizations in 2013. The organisations concerned are: (a) Ministry of Civil Service and Administrative Reforms; (b) Ministy of Information and Communication Technology (including CIB, CISD);(c) Ministry of Finance and Economic Development (Headquarters only);(d) Ministry of Education and Human Resources (including the 4 education zones); (e) Public Service Commission; and (f) Accountant General. Based on the assessment of the pilot programme, improvement as well as extension to 10 Ministries will be done in 2014 with full implementation scheduled for 2015. MCSAR is also working to reduce Schemes of Service from more than 2,500 to around 2,375 in 2013 and further to 2 59 around 2,156 by 2014 and to 1,918 by 2015. This will be also complemented with reforms to reduce the time required to amend a scheme of service from six to four months in 2013 and further to three months in 2015. As concerns efficiency in public enterprises, Government has decided in 2012 to undertake reforms on a number of state owned enterprises which are either loss making or have accumulated significant amounts of debt and to implement a restructuring plan to generate, on a cash basis, a 5% return on all new money injected in the selected enterprises. The objectives of the reforms are to redress the general operational and financial deficiencies in the business model of these public enterprises so as to improve their general economic efficiency, service delivery and to impose financial discipline so as to minimise their fiscal burden. Some 11 state owned enterprises (SOEs) have been targeted with total arrears and loans amounting to Rs 2.1 bn. Three of the SOEs have already had their restructuring plans approved: Business Parks of Mauritius Ltd, Cyber Properties Investment Ltd (CPIL) which is a subsidiary of the BPML and the National Transport Corporation. The Office of Public Sector Governance (OPSG) as part of its mandate will be reviewing the implementation process of these restructuring plans. Also, as part of its monitoring function, the OPSG is in the process of implementing a comprehensive performance monitoring framework to improve corporate governance and has prepared a first review on SOB sector performance which captures the latest financial information stemming from the Parastatals Information Management System (PIMS) on 22 enterprises. In the absence of effective planning, many middle-income countries get caught in a middle- income country trap. The few that have escaped this trap have relied on an improved long- term planning, process that is integrated into the budgeting framework In this context, Government is in the process of preparing a 10-year Economic and Social Transformation Plan (ESTP) that will set out the long-term national goals and strategies which seek to achieve a balance between growth, equity and sustainability objectives. The development of the ESTP will strengthen the framework for medium-term strategic planning, at the level of line ministries, and reinforce the benefits of Performance-Based Budgeting (PBB). Thus the ESTP will provide the framework for ensuring coherence and coordination between ministry strategies. Also the ESTP is complementary to the work of the Maurice Ile Durable (MID) vision and establishes the important link with the budgeting exercise. B. Sharpening Competitiveness of the Economy The world is in transition and new challenges are emerging. Mauritius needs to seize this opportunity to rise to the competitive challenges. As a measure to improve access to credit especially for SMEs and start-ups use of movables (such as plant and machinery, shares/securities, goodwill, intangibles and intellectual property rights) as collateral for obtaining credit will be facilitated and promoted. A committee of stakeholders is entrusted with the responsibility for making appropriate recommendations on required legislative and other changes. It is expected that this revised secured transactions framework will improve accessibility of businesses to credit in Mauritius. 3 60 A measure to improve the menu of credit facilities available to entrepreneurs in the micro, small and medium bracket is to create the space for a Micro, Small and Medium Enterprises (MSME) bank to operate in the country. The restructuring process of the Development Bank of Mauritius is underway with the aim of having a commercial Bank with a focus on SME lending applying for a banking licence before the year end. A Trade Portal is being developed to have swift access on line to all trade related processing systems for tariff and non tariff measures. Once operational, the Trade Portal will facilitate exchanges of information on regulatory policy among stakeholders, thus fostering public participation and stakeholder involvement The Trade Portal is expected to be fully operational by June 2013. The tender has already been awarded to a firm to develop and implement this project In parallel, to fully integrate all trade-related processing systems, the Government has started developing a 'Single Window' system. This Single Window system is designed to provide on-line facility to submit applications for Import/export licenses and permits and receive clearance from all government agencies. The development of the Single Window system will enable traders to track the progress of their applications in real time and facilitate data harmonization and standardization among Ministries and agencies. This will reduce time for processing as well as related transaction costs. It will also assist in improving our Ease of Doing Business and Logistics Performance and Competitiveness Indicators. The Single Window system Is expected to be fully operational by December 2014 and Mauritius would be amongst the first countries to implement such a system in the Eastern and Southern Africa region. The Joint Public Private Business Facilitation Task Force, set up with a broad mandate to review existing systems and processes, and streamline regulations and facilitate investment and trade for goods and services, made some recommendations. These were reviewed and acted upon by an Inter-Ministerial Committee (IMC) set up in July 2012. Concrete results Include the adoption of a silent agreement rule for processing building and land use permits at the local authority level, in which permits are deemed to have been approved two weeks after the effective date of receipt of the application if the local authority has not responded by then. Government through the IMC continues to review existing regulations and processes with a view to making the regulatory environment more business-friendly. A predictable and competitive regulatory environment will be secured for the development of ICT by allowing for additional players to operate on an equal footing including through greater use of open access principles and the use of market mechanisms to avoid arbitrary decisions for spectrum allocation. The adoption of these regulatory tools will allow the regulator to achieve some of the competition goals as set out by the National Broadband Policy. C Ehhancing the Investment Cimate The performance of Mauritius in many International rankings is a source of pride and joy for the entire nation including the ranking on the Mo Ibrahim Index of African Governance and the World Bank Group's Doing Business Report These indicators should not be grounds for complacency. 4 61 Government will continue to facilitate the operations of businesses by enhancing the regulatory environment to make it more transparent predictable, and business friendly. Hence, the Business Facilitation Act will be revisited to adopt a 'whole of Government" approach to investment facilitation and to remove bottlenecks and streamline procedures when investing in Mauritius. In addition, the Board of Investment will set up a Business Facilitation Unit whose main objective would be to support investors in the implementation of large projects. In line with the strategy of Government to further open up the economy, a number of measures will be implemented. These measures include: * increasing the options of non residents to acquire Immovable property; * a new system to modernize land management which will reduce the processing time for registering properties from 15 to 2 days; and * the amendment to the visa regime which will have a favourable impact on FDI inflow with an expected increase in transfer of technology, knowledge, talents and capital. These measures will also facilitate movement of the business community to and from Mauritius. One of the Doing Business indicators In which Mauritius does not perform well is Resolving Insolvency. A cost effective and efficient regime is, therefore, gradually being established to allow businesses to exit the market or give the possibility of rehabilitating the businesses without forcing them into bankruptcy. Thus, publication of rules of professional conduct for insolvency practitioners will enhance transparency, fairness and professionalism amongst insolvency practitioners, and ultimately will enable more effective processes under the law. Credit bureaus play an important role in financial stability by helping control over- indebtedness and are critical to expansion of credit for both individuals and small businesses. All banking institutions, insurance, leasing companies and utility bodies have already joined and are contributing data to the Mauritius Credit Information Bureau (MCIB). In addition, recent amendments introduced in the Banking Act will enable data from utility bodies such as the WMA, ICTA and telecommunication operators to be included in the MCIB. It is expected that the coverage of the MCIB will increase to 90%. In a bid to increase transparency and to make the regulatory environment more business- friendly, government has adopted a prescribed schedule of administrative penalties to apply at Customs to make the system more transparent simplified, predictable and efficient This will increase transparency and predictability within the Customs department thus ensuring the independence and fairness of the appeals process. It is expected that the time allowed to operators to settle their Customs administrative penalty will be reduced from six to three weeks. . Sharin Prosperity with AlI Ownership by the people is a crucial element for the success and sustainability of the reform programme Government Efforts are being pursued to exploring shortfalls in development to 5 62 achieve a more inclusive society, as well as Improving the ranking of Mauritius on the human development index In 2012, Government implemented the Social Register of Mauritius (SRM). The objective of the SRM is to collect more comprehensive Information about social protection clients. The SRM will also allow Government to better track clients over time and evaluate progress towards empowerment In June 2012, Cabinet determined that new social protection programs should use the SRM and a number of new programs launched by the Government since have started enrolment through this system. The SRM will be a key policy design and planning tool to assess the needs of the potential beneficiaries and help them to access the social aid programmes provided by Government The SRM will gradually become a powerful tool to maximise policy effectiveness in the fight against poverty and for effective public service delivery. The National Empowerment Foundation, operating under the Ministry of Social Integration and Economic Empowerment implements programmes designed to alleviate poverty and empower vulnerable people through the intervention of non state actors. To improve performance and its effectiveness a number of measures are being implemented. The NEF has now completed its restructuring with an emphasis on case management at the household level and a focus on monitoring and evaluation. A business process review is underway to further improve service delivery. A strategic plan for the Ministry of Social Integration and Economic Empowerment, to be implemented by the NEF, has also been approved. Capacity building of NGOs will be carried out and the use of the Social Register of Mauritius (SRM) are being actively promoted in all NEF programs. Education and training are prime movers of our economic development objectives and crucial to ensuring the sharing of prosperity with alL A number of measures will thus be implemented. A daily hot meal will be provided in every ZEP school. Scholarships will be given to children from vulnerable families if they cannot get a student loan and provided they qualify through the SRM. To ensure access to information to the student population, Government will distribute one tablet computer to students in Form IV. This will open tremendous opportunities for digital learning, give access to a world of data stored online and enable students to do research and to develop their skills. In addition, high speed fibre optic cables will be extended to every secondary school and a subsidised price for entry level broadband introduced. CONCLUSION Way Forward Successive economic and financial crises which are hitting the world and the main markets of Mauritius may make it difficult to continue with the ambitious reforms that would allow Mauritius to become a High Income Country within the next 10 years. We are thus requesting the World Bank to support us in staying on course for the reforms and long-term goals whilst addressing the short term priority of preventing a reversal of the important gains. Government wishes to continue having recourse to the support of World Bank and instruments like Development Policy Loans to help design and Implement pro-growth reforms that will propel the economy on to a higher growth trajectory, attain full employment, and 6 63 improve the quality of life of its population. Areas of future interventions can be property tax reform, labour efficiency and productivity, diversification of markets and improvement in the implementation of public sector capital projects. We would also appreciate if the World Bank can offer assistance to ministries where institutional capacity to design and implement reforms may be limited. For Government of Mauritius Charles Gabtan Xavier-Luc DUVAL. G.C.S.K Vice Prime Minister, Minister of Finance and Economic Development 7 64 ANNEX 3: IMF ASSESSMENT LETTER INTERNATIONAL MONETARY FUND WASHINGTON, D. C. 20431 CABLE ADDRESS INTERFUND January 24, 2013 Mr. Makhtar Diop Vice President Africa Region World Bank Washington, D.C. Dear Mr. Diop: I am writing to update you on the economic developments and outlook for Mauritius. Prudent macroeconomic policy making since the 2008/09 financial crisis and the reforms implemented over the past few years contributed to a solid performance of the Mauritian economy in 2012. The challenge in 2013 will be to safeguard growth in a difficult external environment and to set the foundation for future growth through increased public investment and structural reforms while continuing fiscal consolidation to reduce economic vulnerabilities. We welcome the Bank's initiative on two Development Policy Loans which should facilitate the continued implementation of the next phase of structural reforms. Please note that consent is being sought from the authorities regarding publication of the letter. We will inform you of the authorities' decision as soon as it is obtained. Sincerely yours, Antoinette M. Sayh Director African Department Attachment 65 MAURiTIus-AsSESSMENT LETTER FOR THE WORLD BANK January 24, 2013 1. This note provides the IMF staffs assessment of Mauritius' macroeconomic conditions and prospects. Recent Economic Developments and Outlook 2. The volatile external environment dampened domestic economic activity in 2012. Growth is estimated to have slowed to 3'4 percent, driven by a slowdown in tourism and manufacturing, while the real estate sector, financial intennediation and transport mid telecommunications have sustained growth momentn. Despite this deceleration, the output gap is estimated to be small (below 2 percent). Inflation remained broadly stable at 4 percent. Credit to the private sector has continued its recovery over the year, with an estimated growth of 13 percent. On the external front, exports are estimated to have grown moderately (5 percent in dollar terms), reflecting broadly unchanged tourist arrivals. FDI inflows are projected to decline modestly. but remain around 2 percent of GDP and international reserves are projected to increase somewhat. In June 2012, Moody's upgraded the country's credit rating to Baal. 3. Macroeconomic policies were broadly accommodative in 2012. In line with staff recommendations, the fiscal policy stance was not as expansionary as envisaged in the 2012 budget. The structural primary deficit excluding grants was broadly unchanged relative to 2011 (compared to a discretionary fiscal impulse of 1.5 percentage points projected in the last staff report). The Bank of Mauritius (BOM) adopted an accommodative monetary policy stance for most of the year. In March 2012, the BOM reduced the policy rate by 50 basis points to 4.9 percent given the deceleration in global growth. In the three subsequent Monetary Policy Conuittee (MPC) meetings, the BOM maintained the policy rate at that level in light of continued uncertainty in the global outlook. Since June 2012, the authorities started to intervene more actively in foreign exchange markets to moderate exchange rate fluctuations and to build up a buffer in international reserves. Reserves are generally adequate but given the characteristics of the Mauritian economy, including exposure to natural disasters, some build-up appears justifiable. 4. Economic growth is expected to pick-up, but the outlook for 2013 faces some headwinds. Staff projects that real GDP growth in 2013 will continue to be slightly below potential (with an output gap of about 1 percent) reflecting subdued demand from Mauritius' main markets. In subsequent years, real GDP growth is expected to accelerate in line with potential growth, estimated at around 412 percent. Inflation would stabilize at around 5 percent. Staff projects the current account deficit to gradually narrow to around 7 percent ofGDP by 2018, in part as a result of sustained fiscal adjustment and refonns improving external competitiveness (including public enterprise reforis, infrastructure investment, streamlining of trade regulations, 66 2 land law reform, among other areas). Mauritius' growth prospects depend heavily on the global economy, especially on developments in Europe. 5. Fiscal policy as planned for 2013 is broadly neutral and includes a modest discretionary fiscal impulse. The fiscal policy stance is reasonable given the projected slow- down in economic activity, although the small discretionary fiscal stimulus will likely have a limited impact in a small open economy with a flexible exchange rate. From a medium-tenn perspective, a fully neutral fiscal stance in 2013 might be preferable to smooth the projected strong fiscal adjustment in 2014-15, which is aimed at building primary surpluses needed to address external imbalances, reduce debt vulnerabilities and rebuild policy buffers. 6. The current accommodative monetary policy stance is broadly appropriate, but inflationary pressures may arise from wage increases in the private sector or higher fuel prices. Staff currently forecasts inflation to marginally exceed the unannounced target of 5 percent. The current monetary policy framework of "hybrid inflation targeting" remains well- suited for Mauritius-a small and open economy. Though broadly appropriate with current inflation below the unannounced target of 5 percent, the authorities should stand ready to tighten policy in response to inflation developments. There may also be a need to reduce excess liquidity to align market driven interest rates more closely to the BOM's policy rate, particularly if inflationary pressures emerge. 7. Further fiscal consolidation over the medium-term and structural reforms would facilitate external adjustment. Fiscal adjustment would contribute to addressing external imbalances in a sustained mainer. The current flexible exchange rate regime has served Mauritius well in terms of responding to external shocks. Efforts to improve competitiveness through structural refonns are crucial to facilitate the reduction of the large current account deficit. 8. The updated debt sustainability analysis shows a broadly positive debt outlook for Mauritius. Both total public debt and external debt are on sustainable trajectories and the results of stress tests indicate that debt dynamics are resilient to several shocks. Nevertheless, the authorities will need to implement their planned fiscal adjustment over the medimun-term as previously envisioned. Current projections suggest that the public debt target of 50 percent of GDP in 2018-as mandated by law-can be met, but a more ambitious fiscal adjustment path over the medium-term would contribute to reducing debt vulnerabilities. Fund Relations 9. Mauritius is on the standard 12-month cycle for bilateral consultations under Article IV of the I\F's Articles of Agreement. The last Article IV consultation (Country Report No. 12/62 March 2012) was completed by the Executive Board on March 14, 2012. A Financial System Stability Assessment update was completed by a joint EI-World Bank team on April 20, 2007. 67 3 Table 1 Mauritis: Selected Economic and Financial Indicators, 2010-2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 Acua Actual [adSR Est. LastSR Proj. Pm Proj Pro Proj Proj (Annual pernt charge, uress otherwise indicated) National incore, prices and empomin ent Real GP 4.1 3.8 3.7 3.3 4.1 37 44 47 4.6 4.5 45 Real GO per capia 3.6 3.4 3.1 2.7 3.5 3.2 38 4.1 4.2 4.1 4.1 GDP percapila (in US dollars) 7,562 8,725 8403 8,851 8,789 9,389 9,913 10,487 11,102 11,807 12,562 GDP dellator 1.7 4.1 3.9 3.3 5.9 5.7 4.6 47 5.0 5.0 5.0 Cnasumer prices period average) 2.9 6.5 4.8 3.9 5.3 5.7 4.6 47 5.0 5.0 5.0 Cnasumer pricesend operid) 6.1 4.9 5.0 3.2 5.5 6.0 5.1 5.0 5.0 5.0 5.0 Unemployment ae (percen) 7.8 7.9 . 8.0 (Annual percent change, in US Dolars) External sector Exports of grs and servces, fo.b 18.9 196 30 48 6.1 6.7 6.3 6.7 6.8 7.1 73 OfW hich: taurismrecepis 15.9 230 2.9 1.7 10.3 43 55 54 5.8 5.8 59 lmpaogos and servis, f. 20.5 208 30 39 43 59 53 6.0 57 6.5 65 Nomial efectre excharngerate (annual avehags) 3.2 3.3 . 0.5 Real effeerve excange rate (annual averages) 3.2 6.2 . 1.3 Termsftrade -55 -5.3 .. 0.5 (Anual change in percent of begrning of perid M2) Money and caredit Net oreinrassets 202 -77 169 87 74 Dlestic eredit 10.3 86 100 127 11.5 Net daimson govemment 10 -14 15 02 1.0 Creditto norgoernmentsector 99 102 82 150 10.4 Broad money (end of period,annual pernceiage charge) 7.6 46 123 64 97 lincomevelocityofbradmoney 0.9 10 09 10 1.0 Inerest rale(weihtedaverageTB, prmaryacLions) 39 46 . 33 (Purcent of GDP, unnessolherwise indicated) Central govenmernt finances Overal consoidated baance (ineluding grants) 2 -3.0 -21 -37 -23 -3.2 -2.6 -1.9 -1.4 -15 -1.5 -1.8 Primary balan (indudirg grants) 0.4 09 T 5 07 -T.6 0.1 0.7 1.2 1.1 1.1 0.9 Revenes and ganls 21.9 214 218 214 20.9 21.9 21.3 20.3 20.2 202 20.3 Expendilure, xc. net lending 24.9 235 255 237 24.1 24.5 23.2 21.7 21.7 21.8 22.0 Dlestic debt ofcentra govemmert 43.1 426 405 415 38.1 397 37.6 374 36.0 34.5 33.2 Extemal debtofcenral govemment 75 8.4 10.0 8.7 11.6 10.3 12.4 12.6 12.6 11.7 10.9 Investment and saving Grossrdesticinvesiment 23.6 25.7 24.8 24.7 25.3 25.1 25.3 25.5 25.6 25.8 25.9 Public 6.1 5.5 7.4 5.5 77 7.6 7.1 7.2 56 54 50 Private 17.5 20.2 17.5 19.2 175 17.5 18.2 18.2 20.0 204 20.9 Goss national sargs 13.3 13.1 14.8 14.7 16.4 15.4 16.2 16.7 17.5 18.1 18.7 Public -0.5 -0.5 0.2 1.0 0.5 1.3 1.1 0.9 0.7 0.7 0.4 Private 13.8 13.6 14.7 13.7 15.8 14.1 15.2 15.8 16.7 17.4 18.2 External sector Balance of goeds and services -12.2 -13.2 -13.8 -13.0 -12.7 -12.5 -11.8 -11.5 -10.8 -10.5 -10.1 Expom godis andservis, fo. b 50.9 526 539 540 54.4 5411 54 1 54.3 54.6 54.8 55.0 Impeorts ofgos and servics, fo b -63.1 -658 -677 -670 -672 -6.5 -66.0 -65.8 -65.4 -65.2 -65.1 Curentaccunt baance -10.3 -12.6 -10.2 -10.0 -9.1 -97 -9.1 -8.8 -B.1 -77 -7.2 OverAl balane 2.1 1.6 -2.4 1.8 0.2 1.2 1.3 1.1 1.4 1.7 1.7 Tetal externaldebt3 22.3 23.7 16.1 23.7 177 25.1 26.7 26.5 25.9 24.9 23.8 Net intematonal reserves (millionso U.S dollars) 2,448 2,631 2420 2,834 2512 2,977 3,144 3298 3,497 3,766 4,044 Months of impats orgods and services, fo.b 4.8 43 39 44 39 44 44 44 44 44 45 Meorandum dems- GDIPat curarent markel prices billions of Maurioan upees) 298.8 3228 350 0 3446 385.9 3779 412.5 451.9 496.2 544.5 5975 GDIP atcrent markel prices (millions ofrUS. dollars) 9,706 11,244 . 11467 . Public sectordeb (pecent ofGDP) 574 57.4 57.0 56.2 55.7 55.8 55.0 542 526 500 47.6 Foreign and lcal curren cyong-tetlrmdebt ratng (Moodys) Baa2 Baa2 .. Ba Sources: Maurian auitries and IMF statteslimaes and projectins IncLuescredittoparastatals 2GFSA201conptofnetlending/net=borrowng,indudesspecal andotherexraudgetaryfuns 5Numberswere revisedi oinclue pnvate ebremal debtranrsaclionsas repoed in the 2011 Forei Asses and Liabilities rvey (FALS) 4 These figures do not dscount cerlain types ofStale-owned enteurises debt. Such dicounitng i ervisaged under the 2008 Public Debt Management Act for he purposesof calcAlaing tho public debt ceiling. ln 2011, dscounted SOE debt amounted to 33 percent ofGDP. 68 ANNEX 4: STATEMENT OF LOANS AND CREDITS MAURITIUS: Public Sector Performance Development Policy Loan Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd P091828 2010 MU-Infrastructure Project 50.00 0.00 0.00 0.00 0.00 29.46 25.34 25.76 Total: 50.00 0.00 0.00 0.00 0.00 29.46 25.34 25.76 MAURITIUS Statement of the International Finance Corporation's Held and Disbursed Portfolio in Millions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2012 I&P (III) Capital 12.5 3.5 2011 State Bank of Mtius (SBM) 75.0 75.0 2009 Stanbic Mtius 20.0 20.0 2006 I&P Capital (II) 9.6 9.6 Total portfolio: 75.0 22.1 20.0 0.00 75.0 13.1 20.0 0.00 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Panic. 2012 tbd36 10.0 Total pending commitment: 10.00 0.00 0.00 0.00 36 Tbd: to be disclosed 69 ANNEX 5: COUNTRY AT A GLANCE MAURITIUS: Public Sector Performance Development Policy Loan Mauritius at a glance 312912 Sub- Upper- POVERTY and SOCIAL Saharan middle- Mauritius Africa income Developmrentdianond' 2010 Population, mid-year (milions) 1.3 853 2,452 GNI per capita (Atlas method, US$) 7,750 1,16 5884 Life expectancy GNI (Atlas method, US$billions) 99 4004 14,429 Average annual growth, 2004-10 T Population(%) 06 25 0.7 Laborforce(%} 17 28 12 GNI Gross per |-pnimary Most recent estimate (latest year available, 2004-10) capita enrollment Poverty (%ofpopuatranbelov nationalpovertyfine) Urban population (%oftotalpopulaton) 43 37 57 Lifeexpectancy at birth (Wars) 73 54 73 Infant mortality (pert000tvebirths) 13 76 17 Chid malnutrition (%ofchldren under5) . 22 3 Access toimproved watersource Access loan improvedwater source (%ofpopulation) 99 61 93 Literacy (%ol population age It+) 88 62 93 Gross primaryenrollment (%olschoot-agepopotatn) 99 100 111 Mritius Male 99 104 111 - Uper-moe-monegroup Female 00 95 111 KEY ECONOM IC RATIOS and LONG-TERM TRENDS 1990 2000 2009 2010 Economic rathsa GDP (LS$ bilans) 27 4-6 88 97 Gross capital formation/GDP 30.2 261 212 23.8 Exports ofgoods andserv/ces/GDP 65.0 614 49.0 52.4 Trade Grosstdomesticsavings/GDP 23.0 256 V.5 I1 Gross national savings/GDP 25.8 263 150 135 Current account balance/GDP -31 06 -74 -8.2 Interest payments/GDP 18 11 0.2 02 Domestic Capital Totaldebt/GDP 351 206 94 1.l aving Totaldebt servicelexports 93 131 20 18 Present valueofdebt/GDP 8.3 Present value of debtlexports . 11 Indebtedness 1990-00 2000-10 2009 2010 2010-14 (average annual gro wth) GDP 52 39 30 4.2 44 Mawitoas GDPpercap/ta 40 31 25 3.7 3.9 - Upp-m.iJe-incaneop Exports ofgoods andservices 56 2.4 -35 00 54 STRUCTURE of the ECONOMY ( 1990 2000 2009 ' 2010 Growth ofcapital and GDP (%A) (%of GDP) Agriculture 129 70 43 4.2 20 Industry 32.8 310 291 286 10 Manufacturing 24.4 235 O.4 191 0 Services 54.4 621 666 67.2 10 05 06 07 08 09 10 20 Householdfinal consumption expenditure 63.4 603 740 73.6 30 Generalgovt final consumption expenditure 13.6 141 14.1 13.9 GF --GD Imports ofgoods andservices 72.2 61.9 584 63.8 (average90-00 2000-10 2009 201 Growth ofexports and imports (%) Agriculture 00 -04 88 -13 15 Industry 54 20 2.9 2.7 10 Manufacturing 53 07 21 21 Services 6.3 59 3.8 50 0 Householdfinal consumption expendhure 51 34 51 -04 10 General govt final consumption expenditure 3.6 34 51 34 15 Gross capital formation 48 41 -20.9 141 Exports --- Imports Imports ofgoods andservices 51 20 -91 71 Note: 200 data are preliminary estimates This table was produced from the Development Economics LUB database -The diamonds show four key indicators in the country (in bold) compared with its income-group average If data are missing, the diamond will be incomplete 70 Mauritius PRICES andGOVERNMENT FINANCE 1990 2000 2009 2010 Inflation (%il) Domestic prices (%change) 13 Consumer prices 13.5 42 2.5 29 In plicit GDP deflator 101 2.1 -02 19 Government finance 3 (%ofGoP,incudescurrentgrants) Current revenue 23.0 190 228 219 05 06 07 05 09 10 Current budget balance 27 -19 0 -07 Overall surplus/deficit -19 -4.8 -35 -38 uPdefator - cPI TRADE 1990 2000 2009 2010 (US$manonw) 90 000 009 010 Exportandimportilevels(UJS$ mill.) (US$ m,illio ox) m Totalexports (fob) 1,163 1,578 1929 2259 5,000 Sugar 329 240 21 348 na 282 329 4.000 Manufactures 718 1,14 1,126 1293 3.000 Totalimports(cif) 1,431 2,158 4,091 4,398 2 *000i rI Food 187 299 762 821 Fuel and energy 105 151 641 865 1000 Capital goods 328 653 956 91 0 Export price index (2000--10) 105 00 14 121 04 05 06 07 0 09 10 In port price index t2000=19) 101 100 130 145 mExpos *Iwport Terms oftrade (2000=100) 104 0 88 83 BALANCE of PAYMENTS 1990 2000 2009 2010 dUS$ crayns) 0 00Currentaccount batnelo GDP(%) Exports ofgoods and services 1,621 2,686 4,156 4,942 0 Eports ofgoods and services 1,784 2,725 5,080 6,127 2 04 H 6 0 0 1 Resource balance -133 -39 -923 -D185 Net income -8 -11 53 205 Net current transfers 87 79 213 183 Current acco unt balance -83 29 -654 -797 10- Financing items (net) 244 U6 1,033 998 12 Changes in net reserves -161 -135 -379 -201 Memo: Reserves including gold (US$ niloas) 521 688 2,824 3,141 Conversionrate(DEC,Iocal/US$) 149 262 320 30.8 EXTERNAL DEBT and RESOURCE FLOWS ' 1990 2000 2009 r 2010 gUS$ nuff. o) 0Compositionof 2010 debt(US$ mil.) Totaldebt outstanding and disbursed 932 946 826 1,076 IORD 176 86 204 197 G:3 IDA 19 13 8 7 F 188 A 197 Totaldebt service 151 453 129 131 IORD 30 23 11 9 B:7 IDA 0 1 1 1 Composition ofnet resourceflows Officialgrants 25 9 95 73 Officialcredits. 57 -2 16 247 D:298 Private creditors 44 -261 31 27 E :3 Foe mign direct investment (net inflows) 41 266 257 431 Portfolio equity(net inflows) 0 -4 206 -40 Vrld Bank program Commiments 30 5 21) 20 Disbursements 6 4 109 3 A-IBRD E - BIlalerld Principal repayments 16 19 9 7 B-IDA D- Othermultlatral F- PrIae Net flows -11 -15 100 -4 IC - IMF G-Short-rerm, Interest payments 14 5 3 3 Nettransfers -25 -20 97 -6 Note: This tablewas produced from the Development Economics LDB database. 3/29/12 71 IBRD 33446 57°30'E Rodrigues Island INDIAN MAUR I T lU s Fa" OCEAN M U I I SIsland 19%4015 Part Mat4iuriIOCA o SELECTED CITIES AND TOWNS Grand Montagne e DISTRICT CAPITALS La Femme Petit ® NATIONAL CAPITAL Gabriel Gunner's RIVERS Quoin 19 Å55 0 1 2 3 Kilometers Crab l l l l MAIN ROADS sand 01 2 3ailes 63o20'E 63125'E 63°30'E .......DISTRICT BOUNDARIES_____________________ - - INTERNATIONAL BOUNDARIES 57°45'E 20°00'S Cannoniers 20°00's Point Grand This map s produced by the MAp Design Umt fThe World Bank Ban Gau be The boundaries, colors, denominatons and any ether imformtion, Goodlands e D'Ambre shown on his map do not imply, en the part ef The World Bank Greup, eny judgment en the legal status ef any teiory, er any endorseor ecceplance ef sucsh boundnes R i V"I ÉRE Triolet E Poudre d'Or PMPLEMOUSSES REMP Riviere du Pamplemnous Rempart BénitlerZ I N D IA N Rouee"°° OCEAN PORT LOUIS LaBo P OR T N'c°itére A<cue,l LO UI S Point co 4, Centre Petite Riviér-e,'90 400 deý Flacq MOKA Pointe Quartier "F LA COQ Quatre Cocos 20°15'S Rose Hill e20°5'S ç) Bel Air Bambou GOs[Îe aux Cerls Pito de Mieu oniogne Pi2en4xMReservowr Vacoas N Tamain . Rwree Tmo Crepie Gand River Sout East ...........Pointe B LA CK ,P LA IN ES du Diable RIVER WILDHEMBS G R A N D Gand G,e MøreNouve||e P OR T °or 40'& ax France 1) Vacoas Mont Piton oRose Be||e 17e aux (828 m) A Grn osex eMahebourg O C E A N Bénitiers Mt. Cocotie Pointe (mm) O e SAVANNE Ouest LEscalier %, Chemnin Riviére des -; Grenier Anguilles a. 20,30'S Baie du Cap Surndam 0 12 3 4 5 Kilometers 0 1 2 3 4 5 Miles 57°30'E DECEMBER 2004
Группа Всемирного банка · Program Document
Mauritius - Second Public Sector Performance Development Policy Loan Program
Открыть оригинал документа
Полный текст размещён на сайте публикующей организации. lawenc.com индексирует метаданные и ведёт на официальный источник.
Полный текст
Основные сведения
Организация
Группа Всемирного банка
Тип документа
Program Document
Страна
Маврикий
Источник
Всемирный банк