world bank document · 2016. 7. 14. · mra mauritius revenue authority mtef medium term...

Document of

The World Bank

Report No: ICR1639

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IBRD-74160)

ON 4 CREDITS

IN THE AMOUNT OF US$ 210 MILLION EQUIVALENT

TO THE

REPUBLIC OF MAURITIUS

FOR A

PROGRAMMATIC DPL 1-2-3-4 SERIES

May 25, 2012

Poverty Reduction and Economic Management 1

Africa Region

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Government Fiscal Year

January 1 – December 31 (starting 2010)

July 1- December 31 (2009)

July 1 – June 30 (prior to July 2009)

CURRENCY EQUIVALENTS

(Exchange Rate Effective as of August 27, 2009)

Currency Unit = Mauritius Rupee

US$1.00 = Rs.32.65

Weights and Measures

Metric System

ACRONYMS and ABREVIATIONS

AAA Analytic and Advisory Activities

AfDB African Development Bank

BOI Board of Investment

BOM Bank of Mauritius

CEB Central Electricity Board

CEM Country Economic Memorandum

DBM Development Bank of Mauritius

DDO Deferred Drawdown Option

DPL Development Policy Loan

DPO Development Policy Operation

DPs Development Partners

EAP Eradicating Absolute Poverty

EPZ Export Processing Zone

ESW Economic Sector Work

ICR Implementation Completion and

Results Report

ICT Information and Communication

Technologies

ICTA Information and Communication

Technologies Authority of Mauritius

IMF International Monetary Fund

IPLCs International Private Leased Circuits

MBGS Mauritius Business Growth Scheme

MFA Multi-Fiber Agreement

MOFED Ministry of Finance and Economic

Development

MRA Mauritius Revenue Authority

MTEF Medium Term Expenditure Framework

NEF National Empowerment Foundation

NLTPS National Long-Term Perspective Study

NPC National Pay Council

NTB Non-Tariff Barriers

NTMs Non-Tariff Measures

PBB Program Based Budgeting

PDO Program Development Objectives

PFM Public Financial Management

ROSC Report on the Observance of Standards

and Codes

SAFE South African Far East Cable

SEHDA Small Enterprise and Handicraft

Development Authority

SMEs Small Medium Enterprises

SMEDA Small and Medium Enterprise

Development Authority

SMSTs Sector Ministry Support Teams

WMA Waste Management Authority

ZEP Zones d‟Education Prioritaires

Vice President: Makhtar Diop

Country Director: Haleh Z. Bridi

Sector Manager: John Panzer

Task Team Leader: Rafael Munoz Moreno

ICR Team Leader: Sawkut Rojid

This ICR was produced with contributions and support from Rafael Munoz (Senior Economist,

AFTP1), Alain D‟Hoore (Lead Economist, AFTP1), Zhanar Abdildina (Senior Operations

Officer), Khurshid Noorwalla (Team Assistant), and Wenda Rabot (Team Assistant). The team

thanks Fernando Blanco for peer reviewing the document.

3

REPUBLIC OF MAURITIUS

IMPLEMENTATION COMPLETION AND RESULTS REPORT

CONTENTS

Data Sheet 5

A. Basic Information 5

B. Key Dates 5

C. Ratings Summary 6

D. Sector and Theme Codes 6

E. Bank Staff 7

F. Results Framework Analysis 7

1. Program Context, Development Objectives and Design: 13

1.1 Context at Appraisal 15

1.2 Original Program Development Objectives (PDO) and Key Indicators 16

1.3. Revised PDO 16

1.4. Original Policy Areas Supported by the Program 16

1.5. Revised Policy Areas 19

1.6. Other significant changes 19

2. Key Factors Affecting Implementation and Outcomes 19

2.1 Program Performance: 19

2.2 Major Factors Affecting Implementation 23

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 25

2.4 Expected Next Phase/Follow-up Operation 26

3. Assessment of Outcomes 26

3.1 Relevance of Objectives, Design and Implementation 26

3.2 Achievement of PDO 28

3.3 Justification of Overall Outcome Rating 34

3.4 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 37

4. Assessment of Risk to Development Outcome 37

5. Assessment of Bank and Borrower Performance 38

5.1 Bank Performance 38

4

5.2 Borrower Performance 41

5. Lessons Learned 42

6. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 44

Annex 1 Bank Lending and Implementation Support/Supervision Processes 52

(a) Task Team members 52

(b) Staff Time and Cost 53

Annex 2. Beneficiary Survey Results 54

Annex 3. Stakeholder Workshop Report and Results 54

Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR 54

Annex 5. Comments of Co financiers and Other Partners/Stakeholders 54

Annex 6. List of Supporting Documents 54

5

Data Sheet

A. Basic Information

Country: Mauritius Program Name: Development Policy

Loan 1,2,3,4

Program ID: P101570, P106650,

P112369, P116608 L/C/TF Number(s): IBRD-

ICR Date: 10/04/2012 ICR Type: Core ICR

Lending Instrument: DPL Borrower: Government of

Mauritius

Original Total

Commitment: USD 210.00M Disbursed Amount: USD 210.00 M

Revised Amount: USD 210.00M

Implementing Agencies: Ministry of Finance and Economic Development

Co Financiers and Other External Partners:

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review:

DPL 1

DPL 2

DPL 3

DPL 4

21-Sep-2006

04-Sep-2007

08-Sep-2008

26-Aug-2009

Effectiveness:

DPL 1

DPL 2

DPL 3

DPL 4

31-Jan-2007

29-May-2008

22-May-2009

28-Jan-2010

Appraisal:

DPL 1

DPL 2

DPL 3

DPL 4

18-Oct-2006

18-Dec-2007

17-Feb-2009

21-Sep-2009

Restructuring(s):

Approval:

DPL 1

DPL 2

DPL 3

DPL 4

12-Dec-2006

28-Feb-2008

31-Mar-2009

12-Nov-2009

Mid-term Review:

Closing:

DPL 1

31-Dec-2007

6

DPL 2

DPL 3

DPL 4

31-Dec-2008

31-Dec-2011

31-Dec-2011

C. Ratings Summary

C.1 Performance Rating by ICR

Outcomes: Highly Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Highly Satisfactory

Borrower Performance: Highly Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation

Performance Indicators

QAG Assessments

(if any) Rating:

Potential Problem

Program at any time

(Yes/No):

No Quality at Entry

(QEA): None

Problem Program at any

time (Yes/No): No

Quality of

Supervision (QSA): None

DO rating before

Closing/Inactive status:

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing) – DPL 1

Central government administration

45

General industry and trade sector 30

General education sector 15

Power 5

General water, sanitation and flood protection sector 5

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings

Quality at Entry: Highly Satisfactory Government: Highly Satisfactory

Quality of Supervision: Highly Satisfactory Implementing

Agency/Agencies: Highly Satisfactory

Overall Bank

Performance: Highly Satisfactory

Overall Borrower

Performance: Highly Satisfactory

7

Theme Code (as % of total Bank financing) – DPL 1

Administrative and civil service reform 27

Public expenditure, financial management and

procurement 18

Debt management and fiscal sustainability 18

Export development and competitiveness 18

Education for the knowledge economy 18

F. Results Framework Analysis

Program Development Objectives (from Project Appraisal Document)

The objective of the program was to support the comprehensive structural reforms which

respond to two major challenges: (i) the “triple trade shock” of trade preference erosion and high

oil prices and (ii) the transition from low wage, low skill sugar and apparel exporter to

innovative, knowledge and skill based services economy. The reform program was anchored on

four pillars: (i) consolidating fiscal performance and improving public sector efficiency; (ii)

improving trade competitiveness; (iii) improving the investment climate; and (iv) democratizing

the economy through participation, social inclusion and sustainability.

E. Bank Staff

Positions At ICR At Approval

Vice President:

Makhtar Diop

DPL 1:

Gobind T Nankani

DPL 2,3 & 4:

Obiageli Katryn Ezekwesili

Country Director:

Haleh Z. Bridi

DPL 1& 2:

Ritva Reinikka

DPL 3 & 4:

Ruth Kagia

Sector Manager: John Panzer

DPL 1:

Emmanuel Akpa

DPL 2,3&4:

John Panzer

Program Team Leader: Rafael Munoz Moreno

DPL 1 & 2

Robert Keyfitz

DPL 3 & 4:

Fabiano Bastos

ICR Team Leader: Sawkut Rojid

ICR Primary Author: Sawkut Rojid

8

Revised Program Development Objectives (if any, as approved by original approving

authority) Program Development Objectives were not revised

(a) PDO Indicator(s)

Indicator Baseline

Value

Original

Target Values

(from approval

documents)

Formally

Revised

Target

Values

Actual Value

Achieved at

Completion or

Target Years

Value as at

December

31, 2011

Indicator 1: GDP Growth

Value (Quantitative or

Qualitative) 3.7 5

4.1

4.1

Date Achieved 6/1/2006 6/1/2010

12/31/2010

Comments (incl. % of

Achievement)

GDP growth rate indeed started to increase. It was 5.7% in

2007, 5.5% in 2008. However because of the global crisis, it

shrunk to 3.1 in 2009 but improved again in 2010 and 2011 to

4.1 %.

Indicator 2: Unemployment Rate


Qualitative) 9.5 550

542.2

600

Date Achieved 6/1/2006 6/1/2010

12/31/2010


Achievement)

Total number employed increased throughout the years and the

target of 550 was achieved in 2011.

9

Indicator 4: FDI as a % of GDP


Qualitative) 1.6 >1.6

3.5

2.9

Date Achieved 6/1/2006 6/1/2010

12/31/2010


Achievement) Achieved

Indicator 5: Stabilize Revenue as a % of GDP above 19.0


Qualitative) 20.1 >19

21.2

21.3

Date Achieved 6/1/2006 6/1/2010

12/31/2010



Indicator 6: Public sector debt as a % of GDP


Qualitative) 68.8

10

Indicator 9: Raise Exports as a % of GDP



52.5

53.4

Date Achieved 6/1/2006 6/1/2010

12/31/2010


Achievement)

Not achieved. Exports as a percentage of GDP fell since 2007

and stagnated around 53 percent.

Indicator 10: Increase Tourist Arrivals (million)



0.93

0.94

Date Achieved 6/1/2006 6/1/2010

12/31/2010



Indicator 11: Unify regulatory regime across EPZ, non-EPZ sectors


Qualitative) No Yes

Yes

Yes

Date Achieved 6/1/2006 6/1/2010

12/31/2010



Indicator 12: Increase international internet bandwidth (Mbps)


Qualitative) 123 >123

1864

1864

Date Achieved 6/1/2006 6/1/2010

12/31/2010



Indicator 13: Increase ICT sector as a % of GDP


Qualitative) 5.2 >6

6.4

6.7

Date Achieved 6/1/2006 6/1/2010

12/31/2010



Indicator 14: Increase FDI (million Rupees)


Qualitative) 2807 >10,000

12000

9,456

Date Achieved 6/1/2006 6/1/2010

12/31/2010



11

Indicator 15: Number of days to start a business


Qualitative) 46

12

Indicator 21: Trained workers under empowerment program

(refer to placement program only)


Qualitative) 0 12000

8200 12200

Date Achieved 6/1/2006 6/1/2010

12/31/2010


Achievement) Achieved in 2011

Indicator 22: Place women displaced from textile sector into jobs


Qualitative) 45 600

200 234

Date Achieved 6/1/2006 6/1/2010

12/31/2010


Achievement) Not Achieved.

Indicator 23: Number of SMEs supported through matching grants


Qualitative) 22 50

16 58

Date Achieved 6/1/2006 6/1/2010

12/31/2010



Indicator 24: Raise Primary completion rate



68.1

71.4

Date Achieved 6/1/2006 6/1/2010

12/31/2010



Indicator 25: Raise secondary completion rate



78.8

79.2

Date Achieved 6/1/2006 6/1/2010

12/31/2010


Achievement) Almost achieved in 2011

13

1. Program Context, Development Objectives and Design:

1. This Implementation Completion and Results Report (ICR) is prepared following the completion of the first Development Policy Loan (DPL) programmatic series in Mauritius. The

objectives of this series were to support the country to transit from an economy which benefited

from decades of preference agreements for its trade activities to one in which the firms were to

face more competition, and to transit from a low skill highly concentrated economy to a more

innovative service based economy. To achieve these objectives, the Government of Mauritius

implemented a program of structural reforms which was bold and covered a wide range of areas.

This program was strongly owned by the Government at the highest level and the commitment to

make the right changes, at times even politically sensitive, was strong. The program itself was

build based on rigorous analytical work. The reform program has been very successful as

measures by two factors: (i) the resilience of the economy during the crisis of 2008, and (ii) the

attainment of most of the targets on indicators identified to measure success.

2. The results of the reform program have been impressive, even at a very early stage in the process. Substantial progress was already achieved in just two years of reforms. By 2008,

for example, debt to GDP ratio already fell to 53.7 percent (from 68.8 in 2006), primary

spending 20.2 percent (from 21.6 in 2006), unemployment rate 7.2 percent (from 9.5 in 2006),

the number of days to start a business was 6 (from 46 in 2006), and tourist arrivals 0.93 million

(from 0.78 in 2006). When the financial crisis set in 2008, some of the measure had to be relaxed

in order to address the short-term concerns and to stimulate the economy, but commitment for

refrom and progress was sustained throughout the operation.

3. The response to the crisis was targeted and time-bound. As a result of structural reforms introduced since 2006 Mauritius entered the global crisis with strong fundamentals. In fact, the

fiscal space created due to the reform process until 2008 improved the economy‟s resilience to

better absorb the impact of the shock. The package of measures that were implemented to

counter the impact of the global crisis and to support in stimulating the economy was

comprehensive and innovative. The fiscal stimulus (around 5 percent of GDP) were primarily

focused to accelerate infrastructure investment projects crucial for long-term economic growth,

and to facilitate restructuring of firms to improve their competitiveness and at the same time

preserve jobs and improve capacity. Institutions were put in place (for example a project plan

committee) to ensure that only investments that have a satisfactory rate of return, and fast-

tracking and front loading public investments. To deal with capacity constraints, schemes were

put in place to facilitate recruitment of local/international expertise in specific areas to assist the

government in formulation, design and evaluation of projects and programs. Microeconomic

interventions targeting firms and protecting vulnerable employees were introduced. In this

context, an innovative initiative called the Mechanism for Transitional Support to Private Sector

(MTSP) was introduced. In the MTSP, the Government became an equity partner to guarantee

survival of, otherwise sound firms, facing severe distress during the crisis. However, the

Government would only intervene if the Banks and shareholders were jointly willing to finance

60 percent of the restructuring costs, thus ensuring only market conforming intervention.

Coordination between monetary policy loosening and fiscal policy stimulus was timely and well

calibrated. The floating exchange rate regime also played an important role as a shock absorber,

contributing directly to the balance of payments sustainability. Overall, a high quality

14

macroeconomic policy framework effectively helped to sustain stability and avoid derailment of

achievements. The response to the crisis, of course, resulted in easing, to some extent, the fiscal

consolidation component of the reform program.

4. The momentum of the reform program has been maintained even after the crisis. The experience of improving the resilience of the economy during the crisis due to the reforms

undertaken until 2008 was in itself a motivating factor to continue the implementation of the

reform agenda. The authorities ascertained that they were on the right track and were determined

to continue the implementation of the reform program. This is evident from the results

framework of the DPO project. Despite some of the indicators fell off-track during the crisis

period, yet they have been brought on track after the crisis and most of them have been achieved.

For example, the debt to GDP ratio which increased to 60.2 percent in 2009 is back on a

declining trend and stood at 57.5 percent in December 2011, and tourist arrivals which fell to

0.87 million in 2009 is consistently increasing and reached 0.96 million in 2011.

5. This programmatic series closely supported the Government in its policy reform agenda. This programmatic series has been used as a vehicle to harmonizing policy dialogue of

development partners with the Government and has also served as a mechanism to ensure

coordination among development partners in the country. This series was also flexible in

responding to the needs of the country. Initially this series consisted of three operations for an

amount of USD 90 million (USD 30 million each). However, to respond to the additional fiscal

challenges of the client in order to cushion the impact of the unexpected financial crisis of 2008,

the Bank increased the amount for the third operation to USD 100 million and introduced in the

operation a Deferred Drawdown Option (DDO). A fourth operation, of USD 50 million, was also

added to this series to continue supporting the reform agenda, since election was due in a year‟s

time and it would not have been the right timing to start a new series. This programmatic series

ended up with four operations for a total amount of USD 210 million.

6. The objectives set out for this series has been broadly achieved. Mauritius indeed transitioned from a low wage, low skill economy to an innovative and skill based economy. For

example, the country experienced a high real growth rate for the ICT sector (above 13 percent in

2009 and 2010). The value added of the ICT sector in 2010 was 14.1 percent higher than in

2009. Exports of ICT goods, including re-export rose by 68.1 percent in 2010 and exports of ICT

services increased by 21.6 percent in the same year. Employment in the ICT sector increased by

3.7 percent in 2010. The ICT Development Index (IDI) which measures countries‟ progress

towards becoming information societies improved to 4.03 in 2010 from 3.83 in 2009, and

Mauritius is ranked second among African countries after Seychelles. From 2001 to 2011, while

labor input for the whole economy grew by an average of 1.3 percent annually, labor

productivity grew by 3.0 percent. While attribution is not only linked to the reform program, yet

this denotes that the economy is becoming more skilled and productive. Employment in higher

skilled jobs (financial intermediation, education, health and real estate and business activities)

has increased by 2.5 percent between 2010 and 2011.

15

1.1 Context at Appraisal

7. Mauritius had achieved important economic success since independence in 1968, but positive outcomes could not be sustained. Mauritius grew at a yearly average of 5 percent (6

percent between 1980 and 1990) causing GDP per capita to rise substantially from 48 percent of

the world average in 1980 to 78 percent of world average in 2004. This impressive achievement

was possible largely due to the opportunistic use of preferential trade agreements for sugar and

textiles, sound institutions to ensure growth and redistribution, and prudent macroeconomic

management. However, the positive outcomes could not be sustained, and growth rate deviated

downwards. In 2005, economic outlook became somber and the pessimism increased in the wake

of the phasing out of the Multi-Fiber Agreement (MFA) for textiles (December 2004), the

gradual decline of the EU guaranteed price of sugar (starting 2006), and the sharp rises in oil and

food prices at that time. These three factors are combined together as the „triple trade shock‟ in

the PDO.

8. At appraisal for the first operation, macroeconomic indicators were worrisome. Budget deficit was 5 percent and increasing. The International Monetary Fund (IMF) noted that if public

enterprise deficit and cash interest payments on an accrual basis is accounted for, then the overall

fiscal deficit is in fact 6.6 percent of GDP for 2004/05 and not 5 percent. Unemployment rate

was 9 percent, its highest level in 20 years, inflation was 11 percent, FDI declined 1.5 percent of

GDP, and public debt-to-GDP ratio stood at 72 percent at the end of June 2005, up from 55

percent in 1995. The Fund noted that a real GDP growth of about 3 percent would worsen the

fiscal deficit (widen to around 7 percent) over time and public sector debt would become

unsustainable. External accounts deteriorated. Current account deteriorated, following increased

trade deficit (fall in textiles exports coupled with increased import bill as fuel prices hiked) and

this led to a drop in the net official foreign reserves (from 7.5 months on imports in 2003/04 to

less than 5 months of imports in 2005/06) and depreciation of the real effective exchange rate

(3.8 percent in 2003/04 and 6 percent in 2004/05). The authorities, by the end of 2004 started a

comprehensive structural reform program to diversify the economy and enhance competitiveness

to maintain high growth rates. The team‟s assessment of the macroeconomic policy framework at

the start of each operation was sound and realistic, and this helped responding to the needs of the

client.

9. Economic reforms accelerated when a new government took office in 2005 and recognized the need for fundamental reforms to boost competitiveness and to ensure fiscal

sustainability over the medium term. The Government elected in 2005 maintained substantial

policy continuity but accelerated the on-going reform process, which were in line with the

National Long-Term Perspective Study (NLTPS). The goal was to diversify the economy by

moving towards high value-added, skill and knowledge intensive service sectors, with explicit

reference to the Information and Communication Technologies (ICT) sector. In 2006, the

implementation of a bold package of policies and institutional reforms started. It deepened many

of the efforts initiated in the preceding years and it aimed at addressing some politically-sensitive

reforms as well, like reduction in custom tariffs and linking wage increase to productivity. The

reform program was informed by the Aid for Trade Report in 2006 that the Government

prepared with the support of the Bank.

16

10. The programmatic DPL series was the right vehicle to respond to the reform program set out by the Government. It provided both financial assistance and technical assistance to the

Government to undertake its reform program, and had in-built flexibility. This DPL series

completely aligned with the priorities of the Government. These priorities are outlined in the

Government‟s budget speeches and the Country Partnership Strategy (CPS) 2007-20131. The

CPS stressed that the challenge for Mauritius was to boost economic growth through higher

productivity; develop human capital through education and labor market reforms; promote new

emerging sectors and develop a knowledge based economy, while preserving its long standing

commitment to social welfare. The CPS objective was to help the Government deal with short-

term trade shocks and the transition to a more competitive and sophisticated economy, while

minimizing negative social impacts. The Government was consistent in its long term policy

objective throughout the series. Technical assistance was provided in a number of areas to

support implementation of policy decisions. For example, in the area of fiscal consolidation, the

WB Treasury provided assistance to the Bank of Mauritius (BOM) and the Ministry of Finance

and Economic Development (MOFED) to jointly develop an action plan for improving Public

Debt Management, and also provided training workshops which proved helpful in strengthening

the relationship with key counterparts and advancing this agenda. Due to its flexibility, at the

time of the crisis in 2008, this series responded rapidly to the needs of the authorities.

1.2 Original Program Development Objectives (PDO) and Key Indicators:

11. The objective of the program was to support the comprehensive structural reforms which respond to two major challenges: (i) the “triple trade shock” of trade preference erosion

and high oil prices and (ii) the transition from low wage, low skill sugar and apparel exporter to

innovative, knowledge and skill based services economy. The reform program was anchored on

four pillars: (i) consolidating fiscal performance and improving public sector efficiency; (ii)

improving trade competitiveness; (iii) improving the investment climate; and (iv) democratizing

the economy through participation, social inclusion and sustainability.

1.3. Revised PDO and Key Indicators, and reasons/justification:

12. The development objective was not revised during the series.

1.4. Original Policy Areas Supported by the Program:

13. Policy area I, Consolidating fiscal performance and improving public sector efficiency: In 2005/06, debt to GDP ratio already exceeded prudent levels, at 69.2 percentage of GDP. The

IMF has warned the authority of significant risks to the outlook and urged the authorities to make

bigger and faster adjustments in 2006/07. The IMF projected that with adverse developments in

growth and world interest rates, a no-adjustment situation could quickly get out of control

increasing debt to 112.3 percent of GDP. Demands on the state for discipline, strategic resource

allocation and economic restructuring increased. The government self-imposed fiscal rules in the

budget of 2006/07. These rules included the following (i) that Government should borrow only

for investment and not for recurrent expenditure, and (ii) that public debt to GDP should decline.

1 The CPS progress report prepared in 2011 extended the CPS period to 2015.

17

To attain these objectives, the MOFED set up Sector Ministry Support Teams (SMSTs) to

coordinate budget preparation with sector ministries in line with the self-imposed rules. The goal

was to help sector ministries improve allocative efficiency in expenditure. The Government

program aimed at: (i) stabilizing total revenue at above 19 percent of GDP and (ii) reducing re-

current expenditure.

14. The DPL series supported a number of policy changes in these areas. On the revenue side, the program supported the Government to adopt policies to reduce distortions and increase

equity in the tax code, relinquishing discretionary powers to grant tax and duty exemptions and

operationalizing the Mauritius Revenue Authority (MRA)2. On the expenditure side, the program

supported the Government to adopt a Medium Term Expenditure Framework (MTEF), to

implement Program Based Budgeting (PBB) in order to increase predictability of resource

envelopes for planning purposes, to align the chart of accounts of the Treasury accounting

system to the Government Finance Statistics Manual 2001, to upgrade the Borrower‟s financial

management information system to enable budget implementation and reporting of financial and

non-financial data, and to prepare sector strategies in line with PBB requirements.

15. Policy area II, Enhancing trade competitiveness: Mauritius faced ineffective regulation, anti-export biased policy distortions, red tape and discretionary interventions, which impacted

negatively on trade competitiveness thereby impeding flow of resources to growth sectors.

Incentives in place were geared more toward production for domestic markets than exports,

product and process innovations were not encouraged and policies to deal with the constraints of

Small Medium Enterprises (SMEs) were not priorities. The reform agenda put in place by the

government addresses these problems by revamping incentives, eliminating the distinction

between Export Processing Zone (EPZ) and non-EPZ firms, tariff liberalization, eliminating

investment tax credit, and lightening regulatory burdens.

16. The DPL series supported a number of reforms under this component. DPL1 and DPL2 focused on reducing the cost of international connectivity and increasing capacity, and DPL2

also called for a review of telecommunications regulation3. Informed policy dialogue in the area

of competitiveness and regulatory framework was enhanced following the Bank‟s Economic

Sector Work (ESW), which identified a number of inappropriate non-tariff trade-related

regulations and implementation, bottlenecks which compromise competitiveness in Mauritius.

Strong Government interest on the subject nurtured a productive policy dialogue and set-up of a

permanent regulatory review committee, as recommended. To support these policies, some of the

prior actions that the DPL series followed up are: acquisition of additional capacity on the South

African Far East Cable (SAFE) cable by Mauritius Telecom, issuing of decision by Information

and Communication Technologies Authority of Mauritius (ICTA) on Mauritius Telecom‟s

2 The MRA‟s legal basis dates from 2004, but it became fully operational only in July 2006 with new premises, a

full complement of professional staff having their own scheme of service, and equipped with a clear mandate and a

modern client focus 3 Regulatory challenges have centered on balancing the interests of the incumbent, Mauritius Telecom, with other

competitors in the sector, especially MT‟s exclusive control over the landing point for international communications

and participation in the SAFE consortium. Good practice thinking on regulation has evolved considerably since

2001 when the ICTA was established under the Telecommunications Act, shifting away from licensing entry to

promoting efficient market outcomes.

18

application for 20 percent price reduction on asymmetric digital subscriber line (ADSL) charges,

initiation of regulatory review of ICTA, continue implementation of the duty free island policy

by significantly reducing average tariff rate and number of top rated tariff lines and establishing

a joint Public-Private Sector Standing Committee to review the design and implementation of

regulatory measures relative to import and export licenses with a view to eliminate unwarranted

barriers to trade.

17. Policy area III, Improving the investment climate: A number of constraints inhibited investment to the country. Some of these constraints were: shortage of human capital, rigidity in

regulation on entry of foreign workers, inflexible labor market, linking wage setting to

productivity rather than index-linked and poor port and road infrastructure. The Government

embarked on reforms to eliminate bureaucratic obstacles. The Registrar of Companies was

designated as a one stop focal agency for business registration and the Board of Investment

(BOI) converted from being an administrator of programs to a facilitator and promoter. Whereas

firms previously had to obtain ex-ante fire and health certificates to start operations, new rules

were set up for ex-post verification of adherence to published guidelines. Other measures include

merging development and building permits, easing entry of foreign workers by combining

residence and work permits into a single occupation permit and tying wages more closely to

productivity by replacing the tripartite wage setting mechanism with a National Pay Council

(NPC). In addition, land administration and management was being modernized with the

introduction of a cadastre system and establishment of transparent and predictable procedures for

transfers of ownership and usage.

18. The DPL series supported various components toward improving investment climate. In March 2004, the Bank submitted the “Report on the Observance of Standards and Codes

(ROSC) of Insolvency and Creditor Rights Systems for Mauritius” and made recommendations

on how to improve the statutory insolvency framework in Mauritius. Other areas of support

included the establishment and operationalization of a new wage negotiating mechanism,

introduction of a flexi-security scheme, and the appointment of the Competition Commission of

Mauritius.

19. Policy area IV, Democratizing the economy through participation, social inclusion and sustainability. The objectives are to make better use of available human resources, create job

opportunities, empowering people through active labor market programs, and providing adequate

social safety nets for the vulnerable. In this context, an Empowerment program was incorporated

for the following purposes/ activities: (i) land for social housing; (ii) land for small

entrepreneurs; (iii) a workfare program emphasizing training and re-skilling; (iv) special

programs for unemployed women; (v) tourist villages; (vi) assistance for outsourcing; and (vii)

support for development of new entrepreneurs and SMEs. Government also embarked on

reforms of the administration of social safety nets to strengthen financial viability and focus

support on the truly needy and emphasis was also laid on increasing access to education and

(re)training.

20. In this pillar, the DPL series supported the expanding opportunities through education, empowerment of people to increase their employability and better targeting of the needy. The

prior actions in the series were: (i) drafting of national education strategy to increase primary,

19

secondary and tertiary levels and raise quality, (ii) preparation and submission to Cabinet of a

draft Education and Human Resources Strategy Plan and implementation of a targeted and

temporary policy action in the form of a work and training scheme, and (iii) production of a

poverty map with the objective of improving the capacity for geographical targeting.

1.5. Revised Policy Areas:

21. Policy areas were not revised.

1.6. Other significant changes:

22. During the crisis in 2008, the Bank responded quickly to meet the needs of the country. The initial plan was a programmatic series of three operations of USD 30 million each.

However, during the global financial crisis when the economic outlook was uncertain, the

country has serious concerns over declining revenues and the authorities needed to insure against

the negative impact of the crisis. The Bank responded and provided an increase of US$70 million

equivalent for the third operation as a self-insurance to adapt and protect against disruption to the

reform program. To allow for greater flexibility in responding to mounting uncertainties, the

operation was converted into a DDO operation and the credit was approved on a more favorable

term which included the elimination of the commitment fee. Although the request from the

authorities was higher than USD 100 million for DPL3, the Bank determined that given the

exposure limits for Mauritius and the then existing volume of loans outstanding, the DDO would

have to be limited to US$100 million.

23. A fourth operation (DPL4) was added to the program. During the preparation of DPL3, the Government requested for a new series of DPOs to support in the continuation of reforms.

However, to keep in step with the electoral cycle it was agreed to add one operation, DPL4, to

the series and to begin a new programmatic series in FY11. The Bank provided a further US$50

million in funding through DPL4, and this was well coordinated with other development partners

to close potential sizeable funding gap if the crisis continued to worsen. This amount was

matched by Euros 40 million of funding from AFD directed at support for projects meeting the

criterion of environmental sustainability. African Development Bank (AfDB), which was also

preparing a DPO series decided to make US$700 million available to Mauritius in three tranches

and the EU also scaled up its assistance through additional grants. DPL4 included joint missions

with all the development partners and development of common results framework with the

African Development Bank.

2. Key Factors Affecting Implementation and Outcomes

2.1 Program Performance:

24. The DPL series aligned with the priorities of the Government’s reform agenda. (The

four pillars are mentioned in section 1.2). The subsequent operations build on the previous ones

and the prior actions followed an incremental sequencing path to push the reforms deeper. Since

the program based budgeting (PBB) was formally introduced in 2008/09, this series made use of

some of the country‟s own indicators and targets to measure success and achievements.

20

Table 1: Prior Actions for DPL1 – 4 Components

Prior Actions: All Successfully Met

DPL1 DPL2 DPL3 DPL4

Consolidating

fiscal

performance

and improving

public sector

efficiency

Reduce primary

spending by 0.5

percent of GDP

relative to 2005/06

Implementation of

a MTEF budget and

preparation of an

indicative PBB for

2007/08 budget

Enactment and proclamation of the Public

Debt Management Act 2008, which limits

the Borrower‟s public sector debt to a

maximum of 60-percent of gross

domestic product and provides for public

sector debt reduction to 50-percent by the

end of 2013.

Preparation of at least

four line ministries

strategies for the

Borrower‟s Fiscal

Year 2010 budget in

line with program-

based budget

requirements.

Reduce tax

expenditures by 0.5

percent of GDP

relative to 2005/06

Reduction of

primary spending

by 1.0 percent of

GDP in 2007/08

compared to

2005/06.

Implementation of performance

management pilots in the Borrower‟s

civil service by individual line ministries

and the Ministry of Civil Service and

Administrative Reforms.

Pass legislation to

abolish ministerial

discretion over tax and

duty exemptions

Enactment and

proclamation of the

Public Procurement

Act 2006, including

the appointment of

senior officials for

the Procurement

Policy Office, the

Central

Procurement Board

and the

Independent

Review Panel, as

prescribed under

the Act

Alignment of the chart of accounts of the

Treasury accounting system with the

Government Finance Statistics Manual

2001 and upgrading of the Borrower‟s

financial management information system

to enable budget implementation and

reporting of financial and non-financial

data, under the efforts of the MOFED, in

coordination with the department of the

Accountant General

Use fiscal rules to set

budget envelope and

strengthen monitoring

to ensure allocations

to line ministries

accord with preset

ceilings

Submission of

paper to cabinet

establishing

Parastatal Reform

Steering

Committee.

Evaluation of state

of health of selected

parastatals (SPMP,

Central Electricity

Board (CEB),

CWA, Wastewater

Management

Authority (WMA)

and establishment

of remedial action

plans to address the

problems

Begin implementation of the respective

parastatal reform action plans, by the

Central Water Authority, Wastewater

Management Authority, Central

Electricity Board, and Sugar Planters

Mechanical Pool Corporation, to improve

operational efficiency and service

delivery by: (a) introducing a

performance management system,

promoting staff proficiency in multiple

areas of expertise, reducing overtime and

eliminating unfilled posts; (b) increasing

capacity utilization of capital equipment

(i.e., vehicles, tractors), and reducing fuel

and lubricating oil costs; (c) outsourcing

transport and security services, cutting

delivery time and cost, and reducing

pilferage; and (d) improving inventory

management by reducing the number and

volumes of items carried.

Operationalize MRA

to strengthen tax

administration

21

Improving

trade

competitiveness

Implement first year

of phased tariff

reduction toward

eventual duty free

island by cutting top

ad valorem rate from

65 to 30 percent and

reduce average tariffs

by 2 percent

(i) Acquisition of

additional capacity

on the SAFE cable

by Mauritius

Telecom; (ii)

Issuing of decision

by ICTA on

Mauritius

Telecom‟s

application for 20

percent price

reduction on ADSL

charges; (iii)

Initiation of

regulatory review

of ICTA

Continue implementation of the

Borrower‟s duty free island policy by

significantly reducing average tariff rate

and number of top rated tariff lines by the

MOFEE.

Revision of the legal

and regulatory

framework of the

Information and

Communications

Technology (ICT)

sector in line with the

international best

practices and changes

resulting from

technological

convergence for

modern competitive

ICT markets, as shall

be evidenced by: (i)

reduction of the prices

of International

Private Leased

Circuits (IPLCs) from

Mauritius to Paris; (ii)

preparation and

approval by the Board

of ICTA of draft

proposals for

amendment to the

Information and

Communication and

Technologies Act;

and (iii) appointment

of the Data Protection

Commissioner

pursuant to the Data

Protection Act.

Unify tax and

regulatory regimes for

EPZ and non-EPZ

firms, with the

exception of labor

regulation

Establishment of a

joint Public-Private

Sector Standing

Committee to review

the design and

implementation of

regulatory measures

relative to import and

export licenses with a

view to eliminate

unwarranted barriers

to trade.

Reduce cost of IPLCs

by 20-35 percent

Improving the

investment

climate

Facilitate doing

business by

streamlining

registration

procedures

Establishment and

operationalization

of new, NPC during

2007 pay round.

Introduction of a flexi-security scheme, as

reflected in the workfare program

provisions contained in section IX of the

Employment Rights Act 2008.

Enactment of the

insolvency legislation

(Insolvency Act No 3

of 2009).

Designate the

Registrar of

Companies as a one-

stop center for

business registration

Appointment of the

Competition

Commission of

Mauritius

22

Ease entry of foreign

professional and

skilled workers by

issuing single

residency and

occupation permits

within three working

days

Democratizing

the economy

through

participation,

social inclusion

and

sustainability

Set up machinery for

Empowerment

Program to spend Rs5

billion over 5 years on

social protection,

retraining and SME

support

Drafting of national

education strategy

to increase primary,

secondary and

tertiary output and

raise quality,

including through:

increasing

enrollment at

tertiary level;

reducing the failure

and marginal pass

rate of the CPE, in

particular in Zones

d‟Education

Prioritaires;

offering a

vocational stream

to those who fail or

barely pass the

CPE; upgrading

teacher training;

implementing a

new curriculum

with a greater

emphasis on

languages, science,

math and ICT.

Preparation and submission by the

Ministry of Education, Culture and

Human Resources to Cabinet of a draft

Education and Human Resources Strategy

Plan that diagnoses education sector

needs, identifies objectives and priorities,

and outlines options, which will be costed

and, together with human resources

requirements, incorporated into a medium

term action plan and a fully financed,

program based budget submission.

Implementation of a

targeted and

temporary policy

action in the form of a

work and training

scheme by the

National

Empowerment

Foundation (NEF) to

mitigate the risks of

widespread layoffs in

the context of the

economic slowdown.

Design measures to

facilitate growth of

formal SME sector

through access to

finance, technical

assistance and

capacity building and

consultancy services

Production of a final

poverty map by the

Central Statistic

Office of Mauritius

(CSO) combining the

Borrower‟s FY

2001/02 Household

Budget Survey and

2000 Population

Census data with the

objective of

improving the

capacity for

geographical

targeting.

Replace consumer

subsidies with targeted

cash transfers, with

additional measures to

increase support and

opportunities to the

poorest

25. Flexibility was instilled in the series to increase effectiveness. The third operation in the series was prepared with DDO and with an increase in the amount of the operation to respond to

23

the Government needs in light of the financial crisis and its associated uncertain outlook at that

time (sees section 1.6). Even during the global crisis in 2008, momentum for reforms remained

high. The reforms implemented in the first two operations of the series provided the fiscal space

to surmount the fiscal challenges that the crisis created. The authorities realized the benefits of

the reforms implemented and therefore continued implementation of the reform program.

26. Partnership with other development partners (DPs) was important to reduce transaction costs by the authorities. There are a limited number of development partners that

operate in Mauritius. These are the European Commission (EC), the World Bank (WB), the

African Development Bank (AfDB) and the United Nation Development Program (UNDP).

Except the AfDB, the other three DPs have an office in Mauritius. The AfDB opened an office

after the end of this program. Donor coordination was very effective; all donors participated in

the DPO missions and were attending several meetings, especially in the areas that they were

also engaged. This was very helpful both for the donor community as well as the Government.

In fact the Government requested that mission around the DPO should be conducted jointly with

the DPs to reduce Government‟s transaction costs but also to ensure that there are no duplication.

DPs were also conducting donor meetings to share views and identify joint working areas. The

Government highly values the DPL operations as a vehicle for coordination on policy dialogue

among all stakeholders involved. During the DPL4 preparation, AfDB and the WB worked

closely in preparing their respective operations.

2.2 Major Factors Affecting Implementation:

27. A number of factors contributed to the successful implementation and outcome of the programmatic series. These include: (i) adequacy of Government‟s commitment, (ii) soundness

of background analysis, (iii) assessment of the operation‟s design, and (iv) risks identified at

appraisal stage and effectiveness of mitigation measures.

28. Adequacy of Government’s commitment: Commitment to economic reform was expressed at the highest level by the President of the Republic during his address to the nation in

July 2005 (President‟s address: Government Programme 2005-2010), by the Finance Minister‟s

statement to Parliament, Setting the Stage for Robust Growth in August 2005), and the budget

speech of FY 2006/07 in June 2006. The reform program was strongly owned by the

Government and the Ministry of Finance was the champion leading the reform process. The

areas for reform were set out by the Government and it was highly committed to attain its

objective. The reform agenda had the political backing at the highest level, and consultations

with stakeholders were quite thorough. The private sector and the public sector were both

formally and informally meeting to discuss relevance of policy changes. Government‟s

ownership throughout this series grew as the Government officials gained more capacity and

build confidence to discuss on policy changes with the Bank and understood the necessity for

these reforms.

29. Operations based on sound analytical work: The DPL series was designed on the basis of the analytical work undertaken prior to the preparation of the first operation and other

Analytic and Advisory Activities (AAAs) undertaken during the implementation of subsequent

operations. The program largely benefitted from the Bank‟s technical assistance in parallel with

24

analytical work. The main underpinning analytical study which informed the reform program is

the Aid for Trade piece that the Bank completed in 2006. Throughout the series, the operations

benefitted from the Investment Climate Assessment in 2009, a study on the social protection

system of the country, a Public Expenditure and Financial Accountability Review in 2007 and

work on private sector development by the annual Doing Business Surveys. In addition, the

operations benefited from other works undertaken by other DPs and the IMF, in particular the

various Article IV documents, and the African Economic Outlook. During the last operation, the

Bank conducted an ESW on trade and labor4 to gather more knowledge which has been used to

inform policy reforms in the area of competitiveness for a subsequent programmatic series of

new DPLs. These knowledge products, in addition to those done by others provided analytical

background for the design of the different operations.

30. Assessment of the operation’s design: The program aligned to the priorities of the Government, and covered a wide range of reform areas. The implementation of the reform

program required buy-in from a number of actors, several agencies/ institutions/ ministries, some

of which had weak implementation capacity. During the design phase, areas where

implementation capacity was limited were identified and technical assistance was provided either

by the Bank or through partnerships with other development partners. Based on past experience

(see section 5.1) the first operation of the series was designed in such a way that the actions were

in themselves of standalone strategic importance but were concurrently connected to the

remaining operations. These areas were mainly debt management, Public Financial Management

(PFM) and trade competitiveness. The DPs ensured effectiveness of their engagements, avoided

duplication, and limited transaction costs to the authorities. The DPO programmatic series

provided a platform for DPs to coordinate their support to the Government. Joint missions

(identification, preparation and appraisal) carried out with other DPs have been instrumental in

harmonizing the donor community around the Government‟s program. The Government highly

values the DPL operations as a vehicle for coordination on policy dialogue among all

stakeholders involved. The DPL and parallel financing from other DPs have supplied around a

quarter of the public sector borrowing requirement over the period.

31. Risks identified at appraisal stage and effectiveness of mitigation measures: Three risks were identified during the appraisal stage of the operations and mitigating measures were

proposed. These were related to the ability of the Government to keep up the momentum of the

reforms, maintaining of the macroeconomic stability and capacity constraints. Because the

reform agenda included some policy changes that would affect and be unpopular with some

segments of the population, and given the knowledge that eliminating subsidies and targeting of

pension payments to only the needy have proved unacceptable in the past, the team identified

that the authorities may slip off track for some of the politically sensitive reforms. However, this

risk would be mitigated since the Government‟s priority pillars included the democratizing of the

economy and adopted an Empowerment Program to enhance opportunities and protect the

vulnerable groups who are at risks from changes taking place. The mitigating factors worked.

32. Maintaining macro stability was identified as a risk as poor debt management policy was a concern. For the last two operations, the risk of instability of the macroeconomic situation

4 Although the ESW was completed after DPL4 declared effectiveness, yet the recommendations were adopted

during the preparation of the operation.

25

was higher due to the fiscal and balance of payments effects of the financial crisis. However, this

risk of macroeconomic instability was mitigated by the Government‟s continuing commitment

and leadership to a sound medium term economic framework, capacity building in debt

management, Government‟s cognizance of the importance of a sustainable and good quality

fiscal response as demonstrated by its fiscal measures and the operation of an exchange rate

policy conducive to external adjustment. The Bank, as well as other DPs, scaled up their

operations. Despite the effects of the global financial crisis, macroeconomic stability was

maintained.

33. Capacity constraints were identified as major risk in all the operations. This included both lack of high technical skills in some areas and lack of human resource in some other areas

to implement the reform program. To mitigate this risk, initiatives such as Service to Mauritius,

Capacity Building program or redeployment from public enterprises were also being undertaken

by the authorities. The donor community supported substantially with technical assistance. For

example, the UNDP and IMF provided technical assistance to modernize the budget process

through adoption of a MTEF and PBB. A key PBB requirement was the development of sector

strategic plans, and this was supported by the Bank. To improve the capacity for geographic

targeting of the poor, as part of the support in the „democratizing the economy‟ pillar, there was

a need for a poverty map to be developed by the Central Statistical Office. Since the statistical

office had limited capacity to undertake such an activity, the UNDP provided support for the

construction of a Social Registry containing information on beneficiaries of social programs in

Mauritius. The EC has supported the setting up of a poverty observatory in Mauritius to monitor

the effectiveness of poverty alleviation policies and to produce high frequency information for

policy makers through the use of qualitative methodologies. This technical assistance was timely

and well coordinated with the Bank which helped to providing advice towards rationalization of

social programs and identifies short/medium-run actions that could generate efficiency and

financial gains.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: The PDO were clear since the beginning of the program and this helped in the designing process

of the M&E parameters to follow up on the achievements of the objectives.

34. M&E Design: The results matrix highlighted the linkages between policy actions and expected outcomes for each of the four main priority area of the Government. This matrix was

prepared jointly by the Government (involving sector ministries), the Bank and to some extent

other DPs. The results matrix of the first operation included target values for some of the

monitoring indicator and in DPL2, the results framework was updated to assigned target values

to all the indicators. At the time of the crisis, the program document reflected well the potential

economic impact and highlighted that the impact may negatively affect some of the targets set in

the monitoring indicators. There were four indicators mentioned in the program document but

which were not linked to any policy actions and were not mapped to any of the four different

pillars of the series. These indicators are: GDP growth, unemployment rate, total number

employed (000) and FDI as a percentage of GDP. Since these indicators were not linked to the

policy changes supported by this series, they have not been assessed.

26

35. M&E Implementation: The data used for M&E purposes were all official data collected from the Central Statistical Office, sector ministries of the Government, principally MOFED and

the central bank. Data from these institutions are highly reliable and very up to date and

disseminate data on a timely basis – monthly, quarterly and yearly. For the pillar on widening the

circle of opportunities, there was a need to gather data to measure low frequency event of

absolute poverty and in this context the UNDP provided technical assistance to the statistical

office to conduct a Survey of Living Conditions (SLC). To better monitor poverty parameters,

the statistical office lacked capacity. The Bank provided assistance to building capacity at the

CSO for production of poverty maps so that the institution can develop necessary tools to

monitor poverty. The assistance from the Bank and UNDP further improved capacity for the

local institutions to produce reliable and frequent data on important factors.

36. M&E Utilization: During the design stage of subsequent operations, the Bank and Government teams would go through the monitoring indicators to assess progress made and

whether the results show large deviations from expected and targeted outcomes. During the

preparation of this ICR, the team did not have any difficulty in gathering data required to fill out

the indicators table, except for one indicator for which data is no longer kept – percentage of

mentored SME firms that shows increase in profitability.

2.4 Expected Next Phase/Follow-up Operation:

37. Following the successful completion of the programmatic series, the Government requested two subsequent DPL programmatic series – one focusing on public sector

competitiveness and other focusing on private sector development. The public sector

competitiveness series builds on dialogue that the first programmatic series initiated on civil

service reforms, public enterprise reforms and trade competitiveness. This series focuses more

specifically on: (i) social protection reform, (ii) public enterprise and parastatal reform, (iii) civil

service reform, (iv) raising competitiveness (trade), (v) improve social sector delivery (education

and health). The private sector development programmatic series is a sector budget support that

draws on the policy and institutional dialogue that underpinned two investment lending

operations that were cancelled. The series focus on (i) enhancing competitiveness through skills

development and technology up-gradation; (ii) access to finance and regulatory reform for SME

growth; and (iii) ICT and e-Government support for increased efficiency and transparency gains.

The first operation of both series were presented to the Board in March 2012.

3. Assessment of Outcomes

Overall rating: Highly Satisfactory

3.1 Relevance of Objectives, Design and Implementation:

Rating for relevance of Objective: Highly Satisfactory

Rating for relevance of Design: Satisfactory

Rating for relevance of Implementation: Highly Satisfactory

27

38. This relevance of the program is rated highly satisfactory. It reflects proper diagnosis of development priorities that remains relevant at the time of the ICR. The program was flexible

and responded quickly to the needs of the client during the global crisis.

39. Objectives: The program‟s objectives (as set out in section 1.2) have been broadly achieved and remain relevant in the current country context. The objectives set in this series are

still consistent with the objectives of the Mauritius‟s reform program, as set out in the

Presidential Address to the Nation (2010-2015) in 2010. The four pillars of the program were

highly relevant at the time of appraisal and still relevant in the current context. This is reflected

by the CPS progress report (2011). The objective of the CPS (2006) was to help Government

deal with short-term trade shocks and the transition to a more competitive and sophisticated

economy and was centered on the four pillars of the Government‟s strategy. The CPS progress

report notes that “the objectives of the CPS remain relevant and aligned to the country’s

development agenda.” The two current DPO series that was approved by the Board in March

2012 recognize the importance of transitioning to knowledge and skill based services economy,

while consolidating the base. The emphasis on public sector efficiency, competitiveness, and

social safety nets is very strong. While business environment has substantially improved during

the program implementation, yet there are challenges ahead. There is a need for further

streamlining of regulations, remove unnecessary hurdles and improve institutions at the customs

for more transparency. Improving public sector efficiency continues to be of high relevance for

Mauritius in the current context, despite improvements have been achieved so far and as

reflected by two indicators in the World Governance Indicators 2011 – Government

effectiveness and regulatory quality. As highlighted in section 1, the ICT sector has gained

substantially more importance in terms of value added, exports and employment. Greater use of

IT system for transactions and modernizing the civil service are key areas.

40. Design: The project design was consistent with the project objectives and such a design remains relevant in the current context. The program, overall, included reforms that were

strongly owned by the authorities, underpinned by strong analytical foundation and

complemented by financial and technical assistance by the donor community. The program was

developed in close coordination with other development partners to ensure that it reflected the

expertise of the institutions engaged and build synergy for the benefit of the country.

Partnerships with donors and local stakeholders will remain crucial, going forward. Mauritius

wants to make a leap to become a developed economy in the next ten years or so. There is a

knowledge gap in terms of key policy changes that are required to make this leap, and robust

analytical work in required to lay out the foundations.

41. Implementation: Flexibility was instilled in the program and the program‟s focus was on the development objectives. Whenever there were changes in indicative triggers to firm up prior

actions, it was ensured that these changes do not altered the thematic content of the DPL and

were fully consistent with its development objectives. The program was aligned to government

medium term priorities but supported the country to address short term challenges. For example,

such that during the time of the global crisis, the program was adjusted to respond to the

immediate needs of the client, by scaling up the amount of the operation and also adding the

DDO facility to it. On capacity, it should be noted that the authorities have upgraded their skills

to a large extent in some areas, for example on fiscal management. The same model of

28

engagement is relevant in the current context. The technical capacity for implementation of some

specialized reforms is still limited. Therefore the combination of knowledge, technical assistance

and financing will continue to be relevant.

3.2 Achievement of PDO:

42. Achievement of the PDO is highly satisfactory. Momentum for reforms was high throughout the program. Despite external shocks in 2008/09 and 2010 due to the financial and

Euro zone crisis, the Government maintained macroeconomic stability and stayed the course of

reforms. The economy defied the negative consequences and observed overall positive growth

throughout the crisis period, although lower than forecasted at the beginning of the DPO

program. Economic activity slowed down during the crisis period but Government was able to

weather the negative consequences thanks to the fiscal space created due to the reform program.

The policy actions supported by the program were critical in achieving the objective of the PDO.

As reflected in section 1 (using examples from the ICT sector), Mauritius indeed transitioned

from a low wage, low skill economy to an innovative and skill based economy.

Objective 1: Consolidating fiscal performance and improving public sector efficiency-

Consolidating fiscal performance rating: highly satisfactory

Improving public sector efficiency rating: satisfactory

Overall rating: satisfactory

43. The program supported reforms to improve fiscal and debt conditions. Fiscal discipline was therefore critical. The aim in this area was to undertake measures to stabilize fiscal

performance at a sustainable level. Measures implemented were twofold: (i) stabilizing revenue

and (ii) reducing expenditure. On the revenue side, a number of policy changes in the tax system

were introduced to stabilize revenue above 19% of GDP. Discretionary power to grant

preferential import duty rates at ministerial level were abolished, tax administration were

strengthened through the operationalization of the MRA and personal income tax was simplified

by consolidating allowances and exemptions on emoluments, retirement pensions, pension

contributions, secure loan interest and more into a single general exemption set according to

household income. Passing legislation to abolish ministerial discretion over tax and duty

exemptions, and operationalization of the MRA to strengthen tax administration were prior

actions supported by this program. Revenue as a percentage of GDP indeed stabilized above 19

percent during the course of the program, but also beyond. In 2011, this ratio was at 21.3

percent.

44. On the expenditure side, the objective was to contain recurrent expenditure. This was to be achieved by annual cuts in primary spending by an additional 0.5% each year. The aim

was to reduce debt to GDP ratio below the 68.8 percent (the 2005/06 level). In 2006/2007 the

Government took a decisive step to cut primary spending by 2 percent of GDP, far exceeding the

target of 0.5 percent envisaged. Primary spending as a percentage of GDP by end 2007 was 20

percent. Greater fiscal responsibility in the form of lower government spending along with strong

GDP performance led to a reduction of debt-to-GDP ratio from 69.2 percent of GDP in 2006 to

57.5 percent of GDP in 2011. The Government showed firm intentions to reduce the debt burden

in Mauritius, demonstrated by the establishment of a Debt Management Unit, preparation of a

29

debt management strategy and enacting of the Debt Management Act 2008. The reforms

implemented helped the Government build resilience and weather the impact of the financial

crisis by creating fiscal space with permitted the authorities to unveil a stimulus package of Rs

10.4 billion. Reduction in primary spending and enactment and proclamation of the Public Debt

Management Act were prior actions supported by this program. Although primary spending did

not reach the targeted value by the end of the operation, there is a move in that direction. The

target was not met by December 2010 due to injection of public funds to stimulate the economy

during the crisis period.

45. Progress on public sector efficiency has been satisfactory. To improve public sector efficiency, this program supported the preparation of sector strategies, implementation (on a pilot

basis) of performance management system, and preparation and implementation of reform plan

for 5 parastatals. Progress in this area has not been very strong. When the program was initiated,

it was expected that by DPL3, all sector ministries would have produced sector strategies to feed

into the national budget of 2008/09. The logic of this choice is that effective budgeting demands

a clear vision of sector objectives and a menu of strategically relevant, costed programs from

which policymakers can choose as they make tradeoffs within and across sectors. However, the

authorities postponed the preparation of the strategies to DPL4, but at the same time reduced the

number of sector strategies to only four. The implementation of performance management

system was indeed piloted within the Ministry of civil service, and is expected to be extended to

all ministries and parastatals. Implementation of the action plans produced to address the

challenges that 5 parastatals face is slow. Reforms in this area are politically sensitive and

progress in this area might take quite long. The DPO series that went to Board in March 2012,

has one pillar on parastatals reforms.

Table 2: Indicators for pillar 1, and baseline, target and actual values

Monitoring Indicators

Baseline

Value

6/1/2006

Target

Values

12/31/2

010

Actual

values

12/31/2

010

Actual

values

12/31/2

011

Consolidating fiscal

performance and

improving public sector

efficiency

Stabilize Revenue as a % of GDP

above 19.0 20.1 >19 21.2 21.3

Public sector debt as a % of GDP 68.8

30

number of tariff lines with zero rated tariffs increased from 74 percent in 2005/06 to 87 percent

in 2010. The Government continues in this direction. In 2012 the Government abolished duties

on further 80 tariff lines (0.64% percent of total tariff lines). It should be noted that the target in

this area was too ambitious. The authorities planned to eliminate tariffs on 95 percent of tariff

lines. But, this was unrealistic to achieve. Analyses were not undertaken to assess the possible

negative consequences that accelerated tariff reductions may have on domestic producers. In

fact, substantial reduction in tariffs resulted in unanticipated effects on domestic producers.

There were no accompanying policies to mitigate this impact, nor was producers given enough

lead time to accommodate the policy changes. To counteract these effects, the Government

provided for funds in the budget of 2007/08 to support the local firms to strengthen their capacity

in product innovation, marketing and export promotion. Besides elimination of tariffs for 88

percent of tariff lines, the highest tariff band was also reduced from 60 percent to 30 percent. In

2005/06, 13 percent of tariff lines were subject to a tariff rate of 30 per cent or above and this

reduced to 1 percent in 2010. Phased tariff reduction by cutting top ad valorem rate from 65 to

30 percent, reducing number of top rated tariff lines and reducing average tariffs by 2 percent

was a prior action supported by this program

48. With reduction in tariffs, inappropriate regulations hindering trade became more evident. A number of inappropriate regulations and implementation bottlenecks which

compromise competitiveness in Mauritius. The program supported the setting-up of a permanent

regulatory review committee (the Non-Tariff Barriers (NTB) Review Committee) with

responsibility to: (i) define the general principles of regulatory reform based on international best

practice and to ensure that these are applied consistently across line ministries and departments;

(ii) review all new and important existing regulations; (iii) oversee the introduction of regulatory

impact analysis as a key tool across the government; (iv) facilitate the intra-ministry coordination

that is essential to address a wide range of the regulatory constraints, including duplication of

requirements and (v) encourage and assist the roll out of IT solutions for trade facilitation across

ministries and agencies. This Committee effectively served as a platform for private sector to

voice out their complaints. This is an area where the Bank is providing continued assistance as

part of the new DPL series. The reforms include revamping of business regulations, streamlining

of Non-Tariff Measures (NTMs), and promoting services trade. Government actions to reduce air

transport costs by liberalizing air access has partially contributed towards the increased in

number of tourist arrivals in the country from 0.78 million in 2005/06 to close to 1 million in

2011.

49. To boost exports a common regulatory regime across all sectors of the economy were introduced and measures to improve international connectivity were undertaken. The

distinction between EPZs and non-EPZ producers was eliminated and the incentive regimes for

EPZ and non-EPZ firms have been unified, for example by setting all corporate taxes at 15

percent. Anti-labor bias in the tax system was eliminated by removing a 25 percent investment

tax credit, and the application process for licenses and permits streamlined to emphasize more on

ex-ante approvals of business registration rather than ex-post verification of safety and health

standards. Unifying tax and regulatory regimes for EPZ and non-EPZ firms was a prior action

supported by the program. The Government implemented reduction in IPLC prices by 50 percent

between 2003 and 2008. Also, to be in line with international standards, amendments have been

made to the Information and Communication and Technologies Act. These changes, which were

31

prior actions of the program, led to substantial increase in ICT-enabled business. The share of the

ICT sector as a percentage of GDP has increased from 5.4 percent in 2007 to 6.4 percent in 2010

and met the set target. International internet bandwidth has increased from 123 Mbps in 2005/06

to 1864 Mbps in 2010. However, the target for the indicator „increase exports as a share of GDP‟

was not achieved as exports suffered considerably during the global crisis period. Exports/GDP

fell to 47 percent in 2009. However, sustained effort led to increase in export to GDP both in

2010 (50 percent) and 2011 (53.4 percent).

Table 3: Indicators for pillar 2, and baseline, target and actual values.

Pillars Monitoring Indicators

Baseline

Value

6/1/2006

Target

Values

12/31/2

010

Actual

values

12/31/2

010

Actual

values

12/31/20

11

Improving trade

competitiveness Trade tariff lines with 0 tariff rate 74 95 87 88

Raise Exports as a % of GDP 60.6 >60.6 50 53.4

Increase Tourist Arrivals (million) 0.78 >0.78 0.93 0.94

Unify regulatory regime across EPZ,

non-EPZ sectors No Yes Yes Yes

Increase international internet

bandwidth (Mbps) 123 >123 1864 1864

Increase ICT sector as a % of GDP 5.2 >6 6.4 6.7

Objective 3: improving the investment climate – Highly Satisfactory

50. The program supported the government to improve the investment environment by revising the regulations and streamlining unnecessary processes that were unnecessarily

retarding investments. To achieve this objective, the Government initiated the following: (i)

investment facilitation, (ii) increasing labor market flexibility, and (iii) attracting skilled foreign

workers. With a rank of 20 in the Ease of Doing Business indicators, Mauritius is one of the best

ranked African countries. The Doing Business index takes into account several factors including

the following factors which were monitoring indicators in this operation: number of days to start

business, number of days it takes to enforce commercial contracts, public credit registry, and

number of days spent dealing with construction permits, and difficulty in firing index. All target

related to these indicators were achieved. Improved investment environment helped in raising

FDI from 2.8 billion rupees in 2005/06 to greater than 12 billion rupees in 2010.

51. The program supported dismantling barriers that caused delays in registering businesses. Prior to the policy changes that the program supported, unnecessarily complex

procedures created uncertainty and often required long waits for clearances and permits. One of

the key areas of policy change that this program supported through its prior action was to

facilitate doing business by streamlining registration practices. To this end, the Government

enacted the Business Facilitation (Miscellaneous Provisions) Act 2006 which included a wide

range of measures to expedite business registration, amending and abrogating several laws. This

Act made the Registrar of Companies a one-stop shop for and changed the role of the BOI from

granting discretionary approvals for investment projects to facilitation. It also relaxed restrictions

on granting work and residency permits. The number of registered companies increased from

29,330 in 2007 to 33,002 in 2011, an increase of around 12 percent.

32

52. To forge competition by domestic business, the creation of a Competition Commission was supported by this operation. The setting up of this mechanism was crucial to prevent anti-

competitive behavior. If investigations show that firms are involved in anticompetitive

behaviors, the Commission has powers to intervene and correct the situation through fines and/or

other punitive measures. The commission has so far completed investigation on two cases and is

currently investigating on six additional cases.

53. The program supported policy changes towards easing entry of foreign skilled workers by facilitating permit issuance and towards improving labor market efficiency by introducing a

flexi-security scheme. The problem of shortage in skilled labor was partially resolved by easing

entry of foreign workers in the labour market by creating a single occupational permit by

combining residency and work permits, and legalizing conversion of tourist to business visas.

With the promulgation of the Employment Rights Act (2008), a “flexi-security” scheme was

introduced with the aim of increasing labour market efficiency by strengthening worker

protection rather than jobs. To reduce employee resistance to necessary structural changes in the

labour market, the scheme provides for a maximum of twelve months of transitional assistance to

employees who wish to take opportunity of the scheme to seek job replacements, undergo

training and reskilling or start a small business, and these employees benefited from financial

assistance. As of December 2010, around 3000 workers (52% female and 48% male) benefited

from this scheme, of which 80 percent sought job replacement.

54. The program supported wage increase linked to productivity rather than wage being consumer price index linked. To this end, the program used as prior action the establishment

and operationalization of a new NPC during the 2007 pay round which would replace the

tripartite wage bargaining mechanisms so as to tie wages closely to worker productivity. In 2010,

a new system for wage negotiation has been set up - the tripartite wage bargaining system. This

is a hybrid of the system supported by the program and the former system whereby wage was

negotiated based on index changes.

Table 4: Indicators for pillar 3, and baseline, target and actual values.

Pillars Monitoring Indicators

Baseline

Value

6/1/2006

Target

Values

12/31/20

10

Actual

values

12/31/20

10

Actual

values

12/31/20

11

Improving the

Investment Climate

Number of days to start a business 46

33

Objective 4: Democratizing the economy through participation, social inclusion and

sustainability – Satisfactory.

55. The programme supported reforms to shield the vulnerable from negative impacts of the transition towards higher value a